Fuel Prices and the Cost of Living

Chuka Umunna Excerpts

Wednesday 16th March 2011 Commons Chamber

[Mr Robin Walker (Worcester) (Con)]

I will be brief, as I know many other Members want to speak in this short debate.

I am glad that the Opposition have chosen the subject of fuel prices, as it is an issue that affects all our constituents and MPs of all parties have already urged the Government to take action. I have signed cross-party early-day motions 1252 and 1241, which call for progress on a fair fuel stabiliser. Along with colleagues of all parties, I have also supported the Federation of Small Businesses in its campaigns. There is a great deal of ground for cross-party consensus on this issue. We all recognise that the cost of living is rising and that fuel prices play an important part in it. We all recognise that the soaring costs of petrol and diesel have knock-on effects on the price of everything—from food and clothing and the cost of getting to work to the cost of educating children.

[Mr Chuka Umunna (Streatham) (Lab)]

The hon. Gentleman is right to refer to the rising cost of living. The big difference between now and a few months ago is, in many ways, the rate of inflation. The Governor of the Bank of England has been clear that he has no way of further loosening monetary policy right now. The talk before Christmas was about such further loosening, perhaps with a further round of quantitative easing. That is clearly no longer an option, which means that the only option is to alter fiscal policy, yet we have heard not a single word from the Minister to suggest that there will be any change in fiscal policy. Does the hon. Gentleman believe that the Government are right to sit on their hands when they are in a position to act to relieve the burden on people like my constituents?

[Mr Walker]

I thank the hon. Gentleman for that long intervention, but we are likely to hear what action the Government are planning in the Budget next week, which I would not want to pre-empt at this stage, so I shall continue with my argument.

There would be no disagreement about the underlying premise of today’s motion—that fuel prices drive up the cost of living. We can legitimately debate the action that Governments are able to take. Like many other Members, I believe the Government should take action on fuel prices by introducing a fair fuel stabiliser and by looking at whether they can put off any increase in fuel duty suggested under the last Government’s escalator policy. It is vital to take into account the real impact on the cost of living but, perhaps even more importantly, the cost to the economy of the rising price of petrol at the pumps.

In fact, having read the detailed response of the Office for Budget Responsibility to the Government’s initial suggestion of a fair fuel stabiliser, I believe that it strongly makes the case for intervention in the fuel price. What the OBR showed was that, contrary to the belief that Government revenues rise as a result of higher fuel prices, the depressing effect on the economy, output and therefore tax receipts, along with the impact on inflation, mean that in the long term, Government net revenues are hurt by higher prices. While that might make more challenging the worthy aim of coming up with a revenue-neutral stabiliser, it clearly shows that success in limiting fuel price rises will bring long-term dividends to Government in terms of tax receipts and lower inflation. The real lesson of the OBR’s report is that the Government need to act on fuel prices, through the fuel duty, to avoid a substantial loss of revenue through economic growth. I am confident that that lesson will be taken into account when we receive next week’s Budget—a Budget for growth in the UK.

I know that the Government have already promised action in remote and rural areas, which I welcome, but I represent an urban constituency that has also been badly affected by rising prices, so I want to remind the Government of the need for action everywhere. As a county town, Worcester’s economy is affected by high fuel prices in rural areas, but our city suffers from higher prices than many other urban areas around it.

My constituents have often pointed out that there is a substantial differential of around 5p a litre between prices in Worcester and prices in Gloucester or Birmingham, just a short drive away. Driving as regularly as I do between Westminster and Worcester in my small diesel car, I feel this price differential very directly and often find it is as cheap to fill up at a motorway service station as it would be in my own constituency. The website petrolprices.com quotes prices as high as £1.45 a litre of diesel in Worcester today compared with an average of £1.39 in Gloucester just 28 miles away or £1.38 in Birmingham. I therefore urge Ministers to look into the differential pricing around the country, whereby some areas, whether urban or rural, pay much more for their fuel, and to assess what can be done to address the problem.

I certainly accept that people in rural areas have greater need for their cars, but I urge Ministers to accept that action on fuel prices across the board will benefit the whole economy. We have seen in previous fuel crises that when fuel prices spike, economic growth slows down, both globally and domestically.

I therefore support taking action on the cost of fuel, but I do not support this Opposition motion, which I believe is poorly targeted and opportunistic. It hits the wrong target in focusing on the impact of VAT and only touching lightly on the far more significant issue of fuel duty. Perhaps that is because the Labour party did so much to encourage the escalation of fuel duty when it was in power. As the Government amendment points out, the Labour Government planned for six consecutive fuel duty rises up to 2014 on top of the 12 increases they made when they were in power. It is fair to say that those increases, like the introduction of the fuel duty escalator under the Conservatives, were made in a different environment from today’s, when the uncertainty in the middle east is adding to the upward pressure on prices. There has been no indication, however, that Labour has shifted from its ideological attachment to ever-higher duties on fuel, which rose from 36p to nearly 58p when they were in government, with Labour Members boasting that they left the duty intact at 65% of the cost of fuel at the end of their term.

It is cynical and opportunistic for a party whose last Chancellor laid the groundwork for the increase in VAT to be lashing out at its implementation, and it is beyond the bounds of belief that Labour Members should want to earmark all the proceeds of a bank levy they failed to make on to a rebate they know they could not have given—even if they had been in power. It is even more astonishing, when they have already suggested other plans to spend this levy many times over through opposing changes to child benefit, that they suggest funding more capital spending and reversing changes to tax credits. The Opposition motion has no credibility on this very important issue.

I urge the Government to act on fuel prices, but I urge them to do so through a fair fuel stabiliser on which there is a broad political consensus, and through looking at the broader case for changes in fuel duty to reflect the economic circumstances of today.