Fuel Prices

Baroness McIntosh of Pickering Excerpts

Tuesday 15th February 2011 Westminster Hall

[Miss Anne McIntosh (Thirsk and Malton) (Con)]

Good morning, Mr Turner, and I offer a warm welcome to what appears to be a very well attended debate. I am delighted to have secured this debate, and I am particularly pleased about its timing, which is before the Budget on 23 March.

This debate is timely, because it examines the impact of fuel duty, particularly in remote rural communities such as those in North Yorkshire. I will just set the scene by outlining the prices as of yesterday, 14 February 2011. People would be hard pressed to buy unleaded petrol in Thirsk, Malton or Filey for less than £1.30 a litre, and they would be hard pressed to buy a litre of diesel for less than £1.36 a litre.

I want to spend some time outlining the impact of these prices on rural communities, and I also want to set out why I fear that the diesel duty differential is affecting rural communities so harshly. Finally, I want to discuss the options to address this issue.

It is no secret that oil prices have reached a record high—barrel prices have reached $100. The fuel duty and VAT element of petrol prices both impact on drivers and as many people regard those elements as a form of double taxation, their effect on petrol prices is highly inflationary. It is generally thought that 20% of the running costs of a truck are accounted for by the cost of fuel duty at this time.

There is a high dependence on cars in rural areas, where we have limited public transport and where the car is a necessity for many people, particularly the elderly, those on fixed incomes and those with young families. In the words of the AA, in rural areas those on lower incomes are already being priced out of the market.

[Harriett Baldwin (West Worcestershire) (Con)]

I congratulate my hon. Friend on securing this extremely important debate. I represent a rural area myself. Does she agree that there are so few petrol stations in rural areas that the existing rural petrol stations can charge much higher prices than petrol stations in towns?

[Miss McIntosh]

The problem is that the sale of fuel in rural areas tends to be less per vehicle. I have learned that people tend to “tank up” for two or three weeks at a time. That has an impact, as rural petrol stations do not face the competition for customers that exists in urban areas.

A particular concern for North Yorkshire is that we have had extremely adverse weather this winter, particularly in November and December, and in addition we have a particular reliance on 4x4 vehicles. I want to declare an interest, in that I run a partial 4x4 vehicle to ensure that I can access parts of my constituency that I would otherwise be unable to reach. We know that 4x4 vehicles are more fuel-efficient than they were in the past. However, for the reasons that I have given, diesel prices at the petrol pump are higher than they were in the past.

In preparing for this debate, I was surprised by diesel prices in the UK. I had understood that they were the second highest in Europe. In fact, the helpful note provided by the Library for this debate shows that the UK has the highest diesel prices in the EU, despite a pre-tax price that is among the lowest in the EU. The differences in diesel duty rates in EU countries are incredibly stark compared with those for petrol. In some member states, where there are lower diesel duty rates, the diesel discount is nearly 50%. By contrast, the diesel duty rate in the UK is 18p a litre, or 47%, higher than in any other EU country and more than 25p, or 80%, above the simple average for the other 26 member states. It is shocking that the higher cost is passed on to those of us who live in rural areas.

[David Simpson (Upper Bann) (DUP)]

This is a very important subject, which is shown by the number of hon. Members attending this debate. In Northern Ireland, the rise in duty on fuel is obviously a major concern, given that we have a land border. The rise in duty causes major difficulty for all our constituents. However, I am sure that she will have seen reports in the press today that the EU may try to stop the duty and the VAT on fuel from being reduced. I am sure that that is a major concern for her constituents, as it is for mine.

[Miss McIntosh]

When the Minister responds to the debate, he may want to touch on that issue. Also, when I come to put my case for a rural rebate, I will acknowledge that there might be problems with regard to the EU directive in this sector.

[Anne Marie Morris (Newton Abbot) (Con)]

I wonder whether my hon. Friend has examined the impact of rising fuel prices on micro-businesses. In our rural communities, micro-businesses are key, and the Federation of Small Businesses has estimated that rising prices will cost each one of these businesses, which are already sorely pressed, an extra £2,000 every six months.

[Miss McIntosh]

Some 6,000 small businesses in Thirsk, Malton and Filey will be affected, and I congratulate the FSB on its excellent campaign.

The impact on farmers—across north Yorkshire, farming is often the main business, and it certainly is in my constituency—of rising fuel prices has been catastrophic. That issue has pushed up the cost of producing livestock and the cost of taking livestock to market. Moreover, for those who train racehorses across North Yorkshire, many of whom are based in Thirsk and Malton, rising fuel prices have pushed up the cost of feeding the horses and the cost of transporting horses and jockeys to races.

[Jim Shannon (Strangford) (DUP)]

As the hon. Lady has said, rural communities in particular are suffering, and the area that I represent, which is very much a rural community, is one of those that has suffered most. Does she agree that concerns have been expressed during the past few months, particularly since Christmas, that some retailers were taking advantage of the situation in relation to the price increase? And does she also agree that there is perhaps a role for Government in relation to monitoring, controlling and regulating that situation?

[Miss McIntosh]

I am mindful of the point made by the hon. Member for Upper Bann (David Simpson) about the land border between Northern Ireland and southern Ireland. In the European Union, the dream place to live as far as fuel duty is concerned is Luxembourg. I am reminded of the queues that I saw on a road in Luxembourg, which existed because the fuel duty is less in that country. So I am very mindful of what the hon. Member for Upper Bann has said and, as I said earlier, I hope that that is an issue that the Minister will respond to, because rural communities seem to be bearing the brunt.

RAC analysis of the survey “Family Spending 2010” shows that spending on transport for the average household was £58.40 out of a total weekly expenditure of £455. Transport is the biggest single item of expenditure, bigger even than food, rent, mortgage or entertainment. Obviously, ancillary services will suffer if transport costs continue to rise incrementally.

There are four options to discuss today. The first is not very realistic—it is the option to do nothing and maintain the status quo. Personally I do not believe that that is a sustainable or realistic option. Obviously, my preferred option is for the Government to pause on 1 April and not to impose the 1p rise in duty. Of course, that increase will be the eighth duty increase to have been proposed by the previous Labour Government since November 2008. I am mindful of the fact that if it is imposed, it would add at least 4p more to petrol and diesel pump prices, on top of the 1p increase in duty in January and the VAT increase as well.

The perhaps more controversial proposal to introduce a fuel duty stabiliser was first put forward by the present Chancellor when in opposition. As shadow Chancellor, he launched a fairly full consultation in July 2008 on a fair fuel stabiliser, a mechanism to ensure that when fuel prices go up fuel duty falls:

“So as the price of fuel rises, the amount of VAT charged also rises. This means that when the price of fuel goes up, the amount of tax charged on it also rises…The current system also makes the public finances more unstable. This is because, when oil prices rise, the Government receives an unexpected windfall from taxes on North Sea Oil production. And when oil prices fall, the Government suffers an unexpected shortfall in revenues.”

I take some comfort from the fact that the Chancellor, in his June Budget, said:

“We are examining the impact of sharp fluctuations in the price of oil on the public finances to see if pump prices can be stabilised, and we will also look at whether a rebate for remote rural areas could work.”—[Official Report, 22 June 2010; Vol. 512, c. 178.]

[Roger Williams (Brecon and Radnorshire) (LD)]

The hon. Lady has set out the virtues of a fuel tax stabiliser, but does she agree that that still does not address the differential between prices in rural and urban areas, which makes it so difficult for the small businesses that I represent?

--- Later in debate ---

[Miss McIntosh]

I entirely take that point, and it is why one proposal that I will come on to is the rural rebate discount. I have no doubt in my mind that the fault for where we are lies very firmly at the door of the outgoing Government, and in particular of their Chancellor. In his 2009 Budget, he announced tax increases on roads, fuel, alcohol and tobacco, and set out fuel duty to increase by 2p per litre in September of that year, and then by 1p per litre above indexation each April for the next four years. The decision to increase duty rates in real terms was projected to raise £3.6 billion over the next three years from 2009-10 to 2011-12.

[Mr David Hanson (Delyn) (Lab)]

Will the hon. Lady tell us whether she voted for the recent VAT rise?

[Miss McIntosh]

I will come on to that in a moment, but it would be nice to hear from the shadow Minister whether he feels any pain or anguish, or any need to apologise for where we are, particularly as many hon. Members from all parts of the House have today said that we are where we are. We need an all-party approach to get out of this, and since we know for a fact, from reading Lord Mandelson’s book, that the Labour party, had it remained in government, would have been committed to increasing VAT, we will not take lectures from Labour Members today.

Motoring organisations and some road hauliers have set out their difficulties with a fuel duty stabiliser, and perhaps the Minister in her response will tell us what stage we are at concerning the assessment reached by the Office for Budget Responsibility about how the stabiliser will work in practice. Were a stabiliser to be introduced, is she convinced that the reduction would be passed on to the motorist? If the reduction remained with the oil companies, there would be no advantage in introducing a stabiliser.

Turning to the rebate for remote rural areas, I realise the difficulties in persuading the European Union of such a necessity, but having practised the art, both as a European Community lawyer—now a European Union lawyer—and during 10 years in the European Parliament, I am more well-versed than most in how to persuade the European Union and our fellow member states, many of whose citizens live in equally remote areas. People in rural areas should be entitled to a discount on the rate of duty.

With fuel duties, the principle would obviously have distribution effects, given the greater reliance in rural areas on both private and public transport. We can have a debate and an argument about how the reduction in duty can best be administered, and I realise that a differential duty would require special dispensation, but the UK, in looking to apply a derogation for a lower rate of duty for petrol sold in one area—Scotland, for example—fails to recognise areas such as Northern Ireland, where there is a land border with an area selling fuel at a lower rate of duty. Also, remote areas that are particularly rural and do not have large centres of population, where people do not have schools closer than 13 or 15 miles and have to travel some distance to do a weekly shop, will be particularly penalised.

[Andrew Bingham (High Peak) (Con)]

My constituency is very rural and contains a huge amount of quarrying. The quarries are remote, and most of the stone is carted out by road, with hauliers paying high fuel prices. Stone is a building block for much of the economy, so does my hon. Friend agree that if there were a rural consideration, the benefits would descend to people in non-rural areas?

[Miss McIntosh]

My hon. Friend has provided an appropriate example of a business that depends heavily on road haulage to get its product to market, and I am sure that it would be a particular beneficiary if the fuel duty stabiliser or a rural rebate were introduced.

Domestic fuel is a subject that appears in my mountains of correspondence. One or two people have expressed concern about the possible operation of a cartel, particularly in the north of England—Yorkshire, the Humber and the north-east—in domestic heating oil prices. I welcome the fact that the Government have grasped that issue and are looking into it through, I understand, Ofgem, but I hope that one of the purposes of this debate is to push at what might be an open door, to press the Government to, at the very least, examine both where we are and how we got into this difficulty. My constituents have expressed their concerns in fairly strong terms. One stated:

“I like many other people in this country am fed up with having to pay over the odds in tax for what is to many people an absolute necessity rather than a luxury”.

Another wrote:

“I am the owner of a small business and am extremely concerned about increases in fuel duty, which have hit the small business sector the hardest.”

[Andrew George (St Ives) (LD)]

I congratulate my hon. Friend on securing this important debate. I have written to the Economic Secretary about the pilots that were announced last October for the proposed rural area rebate. EU Finance Ministers’ approval will be required before we can even get the small pilots going on the Isles of Scilly and in Scotland, which will take some time. Does she agree that it is really important that the scheme is rolled out as quickly as possibly, and that the Government need to go a stage further and indicate which rural areas they intend to cover?

[Miss McIntosh]

I am taken by my hon. Friend’s arguments, but we learned a lot from the smash-and-crash approach of the Labour Government, who announced that they were introducing a 1p increase due to the state of the economy and the fact that the price of oil was $149 a barrel. The Prime Minister’s response to my question showed a responsible attitude. We need a responsible, well-thought-out approach in the Budget. Then we can have pilot schemes in North Yorkshire, Cornwall, Scotland and Northern Ireland.

[Julian Smith (Skipton and Ripon) (Con)]

I support my hon. Friend’s argument. Although the Financial Secretary has said that far-flung areas of Scotland might qualify for rural pilots, North Yorkshire is the most rural county in England and must surely qualify for a pilot if the Government decide to run some.

[Miss McIntosh]

I am delighted that my hon. Friend and neighbour has put the case so eloquently. Rural communities, such as those in North Yorkshire, are suffering, and they deserve special attention.

[Jake Berry (Rossendale and Darwen) (Con)]

On perceived price fixing between local retailers, I wrote to several major supermarkets in my area before the general election. Fuel is 7p a litre more expensive in Rossendale than in the immediately adjoining town of Bury. The supermarkets wrote back to say that there is a small geographical area in which they fix their prices. Is that not a case of major retailers charging people what they can bear rather than what is necessarily fair?

[Miss McIntosh]

Several hon. Friends have made comments that I hope the Government will take up, not least of which is the fact that some small independent retailers who try to offer fuel in rural areas are being priced out of the market because suppliers 20 miles away undercut them substantially. All those issues are worthy of further investigation.

[Andrew George]

Will my hon. Friend give way?

[Miss McIntosh]

I am drawing my remarks to a conclusion.

I believe that we are pushing at an open door, and I take this opportunity to press the Government to change. Doing nothing is not a realistic option. The price of fuel is one of the most pressing issues facing those in rural communities. The small businesses that drive our economy, including the 6,000 small businesses in my constituency alone, are suffering particularly. Fuel forms a large part of individual household income, and it is extremely inflationary in pushing up the price of everyday items. UK hauliers already pay as much as £12,000 a year more than some EU competitors. As I have said, we now have the highest duty on diesel, yet our diesel is the most cheaply produced.

I make a plea to the Minister to stop the 1p increase on 1 April, consider seriously a fuel stabiliser and a remote rural rebate or discount, which would have a favourable impact on many rural constituencies represented in this Chamber, and address the discrimination against rural dwellers endemic in current pump prices. The differential between diesel and petrol is now unacceptable and must be addressed. I urge the Minister to respond in the most favourable terms possible for the good of families, farmers, the elderly, those with young children, small businesses and all of us in rural areas who depend on cars.

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[Mr David Hanson (Delyn) (Lab)]

I congratulate the hon. Member for Thirsk and Malton (Miss McIntosh) on securing this debate, which has drawn a great deal of interest. The fact that some 20 Members from all parts of the United Kingdom—Northern Ireland, Wales, Scotland and England—contributed to it shows how important the issue is across the whole of the UK. I confess that for a moment I felt like the 24th Regiment of Foot at Rorke’s Drift—I felt that I was surrounded by thousands of Government Members—but I was pleased that at some point the focus of the debate shifted to the Minister rather than the Opposition.

[Miss McIntosh]

I am delighted to see that the right hon. Gentleman has been joined by a reinforcement on his side. Does he think there is any reason for this issue registering so little in the interests of members of his party that no one else has turned up to participate in the debate?

[Mr Hanson]

I have hon. Friends who represent rural areas. I myself represent a rural constituency. In 2000, the well-known fuel dispute commenced in my constituency because of concerns over fuel prices—we have an interest in the matter.

My first point in response to what the hon. Lady said is that the previous Labour Government did try to address the issue. She will know that striking the right balance between taxation, the environment and affordability of car transport is critical, and that is why Labour, when in government, postponed fuel duty rises when the cost of petrol was high. In October 2008, we postponed the 2p per litre rise to help alleviate the pressures that we recognised were there.

When the fuel dispute took place in my constituency, petrol was around £1.06 to £1.07 per litre. In my constituency, it is now around £1.28 per litre—slightly less than has been mentioned today but a big difference—and, as Members have said, that impacts on businesses, schools, commuters and a range of issues generally. My first thought was, if that is the case, what have the coalition Government, who have had the opportunity to tackle the issue, done since last May? In an intervention, I explained to the hon. Lady that she voted for VAT increases which, according to the House of Commons Library, have added around 2.6p per litre to the price of petrol. Those are important issues. I do not want to focus on the negative, but we cannot get away from the fact that the price of petrol is higher now than it was when Labour left office, and it is higher because of the VAT increases for which she voted.

[Miss McIntosh]

Is the right hon. Gentleman denying that it was his Government’s policy, had they continued in government after the election, to introduce VAT increases which would have had a negative impact?

[Mr Hanson]

There is a range of issues. We would have had to see what we would have done. We had a range of plans to tackle the deficit, but, in my view, VAT is a regressive tax.

[Miss McIntosh]

That is a yes.

[Mr Hanson]

The hon. Lady might want to, but she cannot hide from the fact that her vote—and the votes of all hon. Members who have spoken today from the Government Benches—has added to the increase in the price of fuel since May last year. That is an uncomfortable fact for them, but that is what they have done. Again, I do not want to focus on the negative, because we have had some positive discussions. However, when attacked, I tend to fight back. Unfortunately, that point was made, so I have to reply on the record.

We have had a number of suggestions, all worthy of consideration. I will look at each in turn. The hon. Lady discussed the issue of the fuel duty stabiliser. The issue was raised during the election, and the hon. Members for South East Cornwall (Sheryll Murray) and for High Peak (Andrew Bingham) also touched upon it today. The fuel duty stabiliser involves some problems, so an explanation from the Minister as to where the Government are on their election pledge from last May would be worth while. The Government’s own Office for Budget Responsibility said recently that the idea of a fuel duty stabiliser is unworkable. I share that view, on behalf of the official Opposition.

In principle, the concept is simple: as oil prices go up, fuel duty will go down; and as oil prices drop, fuel duty goes up. The motorist, therefore, pays more or less the same for fuel and the Exchequer gets more or less the same in revenue. However, in reality, the suggestion is far from simple. On 14 September, the Office for Budget Responsibility published an assessment of the effect of oil price fluctuations on public finances, with the aim of informing the debate. The report found that a temporary rise in oil prices would have a negligible effect on UK public finances, while a permanent rise would create a loss. The Government would find introducing a fair fuel duty stabiliser difficult because, as the head of the OBR, Robert Chote, suggested a couple of weeks ago,

“a fair fuel stabiliser would be likely to make the public finances less stable rather than more stable”.

A 1% reduction in petrol duty would cost the Exchequer around £130 million. The fuel duty stabiliser, depending how it was operated, could cost between £3 billion and £5 billion of public expenditure. The stabiliser was a manifesto commitment, which the Conservative Government wish to carry out, but they need to explain how they will do so and how they will compensate for the loss to the public purse of such a sum. My rural constituents, as well as my urban constituents, will have to find that money from somewhere else, whether in public service cuts or extra taxation. The then Liberal Democrat spokesman, now the Secretary of State for Business, Innovation and Skills, said in opposition that he believed a fuel duty stabiliser would be “unbelievably complicated and unpredictable”, which the OBR has confirmed. We need an explanation of where we are. Is the fuel duty stabiliser still a live option? Do the Government intend to keep their manifesto commitments? What would the cost to the public purse be of the potential loss of income from the stabiliser? Since the election, all we have seen is a rise in VAT to 20%, which has increased petrol prices, not decreased them.

The hon. Members for High Peak, for South East Cornwall, for Montgomeryshire (Glyn Davies), for Carmarthen West and South Pembrokeshire (Simon Hart) and for North Antrim (Ian Paisley) suggested that we look at the idea of a rural derogation, which the Liberal Democrats proposed in their manifesto. The idea seems to have been adopted by the coalition. However, the pilot at the moment is simply for the Northern Isles and for the Isles of Scilly. We have also had representations today for the “island of Ulster”, as the hon. Member for North Antrim called it, as well as from Cornwall and mid-Wales—a very rural area, I know, as pointed out by the hon. Members for Brecon and Radnorshire (Roger Williams) and for Montgomeryshire—and from the hon. Members for High Peak, for Thirsk and Malton and for Skipton and Ripon (Julian Smith). Such areas should be included in such an issue.

How would the Government define a rural area, given the issues raised? Half of my constituency is extremely rural and half extremely urban. Throughout the Chamber, we have had discussion about where the border falls. The difficulties are real. First, why have the areas chosen for the pilot been selected? I could make a strong case for parts of Northern Ireland, where I served as a Minister, parts of mid-Wales, which I know very well, or parts of North Yorkshire.

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[The Economic Secretary to the Treasury (Justine Greening)]

It is a pleasure to serve under your chairmanship, Mr Turner. I also thank my hon. Friend the Member for Thirsk and Malton (Miss McIntosh) for securing today’s debate. We debated the subject on the Floor of the House recently, but I very much welcome another debate today, because she has clearly raised an important issue.

The cost of fuel is a difficult issue for many families and businesses throughout the country. As I said, the House had an extensive debate last week and, again, we have had helpful contributions from Members throughout the Chamber today. I share the disappointment of my hon. Friend that no Labour MPs other than the shadow Minister participated on an issue that clearly affects all our communities.

In fairness, when we face such difficult times, the impact of fuel duty and fuel prices become even more critical for families and businesses. The Conservative party had recognised that in opposition. We have always acknowledged the impact of oil prices—how they feed through into fuel prices at the pump—to be a real challenge. The Opposition, as we heard again from the shadow Minister, still do not recognise the problem to be in need of solution. We do.

As discussed today, we talked about a fair fuel stabiliser, which I reassure the Chamber we are looking at actively. We take it seriously, and we are looking at how we can develop that policy, among others.

[Miss McIntosh]

I know that the Minister will be pressed to go further, but she will probably not be able to today. One of the coalition Government’s best selling points in the run-up to the election was that we always referred to factors such as rurality and sparsity of population. That was in all areas of life, whether delivering the big society or speaking about the everyday roles of individuals and businesses in rural areas. Will the Minister confirm whether we will go back to that? Do we need a fuel duty regulator? Many of the concerns raised during the debate were about how the reduction in cost would transfer to the motorist if a stabiliser was brought in. I hope the Minister will address the huge and significant differential between the prices of diesel and petrol at the pump.

[Justine Greening]

My hon. Friend raises an interesting point, and this debate has been an excellent opportunity for hon. Members to set out the challenge that fuel prices pose for their communities and businesses. It is difficult—and it would not be right—for me to pre-empt the coming Budget, but my hon. Friend sets out some of the broader issues. This debate is not just about how the oil price feeds through to the price at the pump, but about recognising that rural areas face a particular challenge. I say to my hon. Friend the Member for High Peak (Andrew Bingham) that people in urban areas do understand the impact of fuel prices—they face them too—but we recognise that there are additional challenges for rural areas.

As we have heard, public money is short and the deficit we inherited is unprecedented in modern times. The previous Government had no answers or real ideas—we have heard no ideas today—to tackle the mess that they created. There was something ironic about the note from the outgoing Chief Secretary to the Treasury that said, “There’s no money left.” In many respects, it was even worse than that; we were left with a deficit and debts.

It is worth running through the many rises in fuel duty that we have seen. There was a rise of 2p per litre on 1 December 2008; a rise of 1.8p per litre on 1 April 2009; and a rise of 2p per litre on 1 September 2009. A rise of 1p above RPI was announced in the 2009 Budget. That was phased in from April last year, with a second rise of 1p per litre in October. A range of future increases was announced in the 2009 Budget, one of which has particularly concerned hon. Members in this debate. In spite of all those rises, we picked up an enormous deficit and, according to the outgoing Government, there was no money left. That shows what an absolute mess they handed over which, as has been pointed out, places constraints on what we are able to do. However, we know that we must tackle that mess, and tackle it we will.

We have had to take difficult decisions. Nevertheless, in the midst of that we have taken steps to increase the personal allowance, which will rise by £1,000 from April this year. That will help families on the lowest incomes, and 880,000 taxpayers will be taken out of paying income tax altogether. Parents will be able to take advantage of increases in child tax credits, and pensioners will receive above-indexation increases in the state pension. We have managed to do something that the previous Government did not do in 13 years—re-establish the link between the state pension and earnings. Corporation tax for businesses is being cut from 28% to 24% over the next four years.