Fuel Costs

David Gauke Excerpts

Monday 7th February 2011 Commons Chamber

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

This has been an interesting debate, and I thank all hon. Members who have contributed. Fuel prices are undoubtedly of significant concern to hon. Members and the wider population.

It is fair to say that the issue is not new. My hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso) has referred to this debate being like “Groundhog Day”. He is a long-standing participant in debates on this subject, and he is influential in setting out the arguments for a rural derogation, to which I shall turn later. He also set out further proposals that may influence this debate in the years to come.

At the moment, there is a particular concern about fuel prices. We have heard today from hon. Members from all parties and from all parts of the United Kingdom about the difficulties that their constituents face because of rising fuel prices. It appears to cost more every time that people fill up the car, and the public understandably want us to do something about that.

[Mr Binley]

I have a message for the Economic Secretary from hauliers in my constituency, such as Wrefords and Butts. They understand what the Government need to do to put the deficit right, but they urge him to do something that was in our manifesto, namely bring forward a stabiliser. They do not understand why we have not done it already.

[Mr Gauke]

I will turn to the stabiliser in a moment. My hon. Friend has touched on a point that my hon. Friend the Member for Morecambe and Lunesdale (David Morris) and my hon. and learned Friend the Member for Sleaford and North Hykeham (Stephen Phillips) also raised, which is the deficit that we face. It is only by coming up with a credible plan to balance the books that we have managed to create the confidence needed for a recovery. To get there, we have had to make some tough decisions, such as raising certain taxes, including VAT, and cutting public expenditure in the teeth of opposition from the Labour party to all our plans.

One of the few things that we inherited that would reduce the deficit were the previous Government’s plans to increase fuel duty. We heard quite a lot from the Opposition spokesperson, the hon. Member for Bristol East (Kerry McCarthy), about VAT. It is worth pointing out that the Labour Budgets of 2009 and 2010 involved the following increases in fuel duty: in September 2009, there was a 2p increase; in 2010, there was a 2.76p increase; and there are 1p increases in 2011, 2012, 2013 and 2014. In total, the increase is about 9p a litre. We cannot dismiss those increases without knowing how we can fund any shortfall.

As the Prime Minister said over the weekend, we

“would love to see tax reductions…but when you’re borrowing 11% of your GDP, it’s not possible.”

So although I sympathise with the points made by hon. Members from all parts of the House, our decisions on tax must be viewed in that context, where every penny we increase fuel duty by raises an additional £500 million and if we cut fuel duty, that money will have to come from somewhere else.

[Dr Whiteford]

I ask the Minister the question that I have asked repeatedly in this debate: why should people who live in rural areas pay a disproportionate share of fuel taxation?

[Mr Gauke]

The two particular areas we have debated today are the fuel stabiliser and the rural fuel duty rebate, which this House has debated on a number of occasions and is clearly of close interest to a number of hon. Members. The Government have made no secret of the fact that we are considering such a rebate. People in rural areas do face particular challenges on petrol and diesel, as fuel prices there tend to be more expensive because of relatively high transport costs—a number of hon. Members have made that point. A lack of alternatives means that people in rural communities have little or no choice but to use the car, which is why we have announced our intention to introduce a rural fuel duty pilot. It will deliver a duty discount of up to 5p a litre on all petrol and diesel which, as the Economic Secretary said at the start of today’s debate, would save some drivers in rural areas upwards of £500 a year.

[Mr MacNeil]

The hon. Gentleman knows that I really welcome the rural fuel derogation and hope it comes soon. Will he give us any idea of when that might be?

[Mr Gauke]

As the Economic Secretary stated, the Government are engaged in informal conversations with the European Commission and we hope to be able to bring together our representations in a formal submission to take this forward, but this matter is not as simple as the hon. Gentleman might like it to be. We are considering the exact scope of the scheme, although the inner and outer Hebrides, the Northern Isles and the Isles of Scilly will certainly be included. I say to him, and to other hon. Members such as my hon. and learned Friend the Member for Sleaford and North Hykeham and my hon. Friend the Member for South Derbyshire (Heather Wheeler), that we can go ahead only when we have got clearance from the European Union. It is important to set out proposals that will achieve that clearance and we can then obtain the unanimous support of the 27 EU member states, which is what we require. Productive discussions are ongoing and we will of course update the House whenever we have any further progress. I hope that we will be able to provide a further update at the time of the Budget. Hon. Members should note, as, to be fair, the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) did, that at least this Government are trying to make progress on this area. The hon. Member for Bristol East did not even make it clear today whether she supports our even trying to do something on this issue, and that is a remarkable position.

The fuel stabiliser proposal was raised by a number of hon. Members, and the hon. Member for Dundee East (Stewart Hosie), in particular, has taken a close interest in it for many years. There is an argument that higher oil prices will automatically lead to higher tax revenues. The Conservative manifesto said that the Office for Budget Responsibility would seek to review this policy to see what we could do in this area. We did ask the OBR to examine how the oil price affects our economy in order to determine how the Government could share the burden of high oil prices and see whether a fair fuel stabiliser could work in practice. The OBR’s assessment was that increases in tax revenue received from oil and gas production can be easily offset by things such as higher inflation, which would lead to higher benefit payments and a further drain on the Exchequer. The reality, as set out by the OBR, is that there is no sudden windfall for the Exchequer as a consequence of higher oil prices. None the less, we recognise the strains that this situation causes and we continue to examine a range of options, including the fair fuel stabiliser. It is right that we must ensure that whatever we do is not only fair, but affordable.

This Government understand the problems people are facing and are taking every action possible to help those most in need, but we also know that we have to act responsibly and ensure that we tackle the record national debt. The increases in fuel duty result from the previous Government’s proposals. Some people argue that we could abandon those proposals, but it is not clear whether that is the position of the Labour party. We need to strike a difficult balance, but our priorities are clear. We must get the economy back on its feet and we must have a private sector leading the recovery and creating new jobs. In contrast to our predecessors, we are seeking to address the genuine concerns that exist about rising fuel prices and we are determined to settle on a proposal that is fair, sustainable and fiscally responsible.

Question put (Standing Order No. 31(2)), That the original words stand part of the Question.