Fuel Duty

Fiona O'Donnell Excerpts

Monday 12th November 2012 Commons Chamber

[Sajid Javid]

I thank my hon. Friend for that point. It would not be appropriate for me to talk about any individual company, but he makes a good point. Any company that is engaged in aggressive tax avoidance needs to explain itself.

Tax avoidance ran rife under Labour. We have taken action. We are investing £900 million to tackle tax avoidance and evasion, which will deliver £7 billion a year by 2014. We have already signed a groundbreaking agreement with Switzerland to make it much more difficult to evade tax. In March this year, HMRC closed a business property loss scheme within a week of its disclosure. At the G20, the Chancellor and his German counterpart announced concerted co-operation to close gaps in international standards and to crack down on international tax avoidance. Labour's former City Minister, Lord Myners, was on the radio only this morning welcoming this progress.

Underpinning all this progress, we are introducing a general anti-abuse rule so that no one can follow the letter of the law but abuse the spirit and get away with it—something else on which the Labour party never delivered. This is what real action on tax avoidance looks like.

[Fiona O'Donnell (East Lothian) (Lab)]

If it is all going so well, why cannot the Minister do something to help my constituents who cannot afford to fill up their cars?

[Sajid Javid]

This Government do not shy away from making tough decisions. We are getting on with cleaning up the mess left behind by the previous Government, and we are doing everything we can to help hard-working families with the cost of living and putting money back into their pockets. Our action on fuel duty is a part of this. Fuel duty is currently 20% lower in real terms compared with its peak in March 2000, and 7% lower compared with May 2010. If we had continued the policies of the previous Government, pump prices would, quite simply, be higher—fuel would be 10p more expensive per litre. I know that some hon. Members will call for a further freeze in fuel duty today. I can assure them that the Government understand the financial pressures that hard-working families are facing. Subject to the constraints of the public finances, this Government are determined to keep helping families with the cost of living.

I urge hon. Members to reject the Opposition's motion and to support the Government's amendment.

--- Later in debate ---

[Mr John Redwood (Wokingham) (Con)]

The Opposition are right to highlight the issue of the cost of living, and it is timely that we are having a debate about the pressures on it. It is particularly timely that we are having a debate about the pressures that the outgoing Labour Government imposed on the cost of living, which still remain. I am thinking of the hidden increases in petrol duty, and all the other measures that they left in place or that were needed if we were to try to combat the deficit.

There is no doubt that the squeeze on people’s real living standards has been very severe in the last four years. It was most severe under Labour during its slump, but it has continued under the coalition Government. One of the reasons for the intensity of that squeeze on real incomes is the fact that price inflation has remained obstinately high, partly as a result of indirect taxation and partly, as the Minister said, as a result of world pressures on commodity markets.

I find myself unable to support the motion, which may come as no surprise to any Member on either side of the House. I consider it to be defective in two important ways. First, I do not think that a temporary three-month freeze will solve the problem. A double whammy in April, which is what Labour proposes, could be even worse, because people will not have become used to the rising fuel price that was inherent in the Labour plans.

[Fiona O’Donnell]

The right hon. Gentleman suggests that three months do not constitute a long period, but they will be three months of cold weather, during which people will be having to cope with an increase of up to 11% in their energy bills. The three-month freeze would make a difference.

[Mr Redwood]

I am all in favour of lowering energy bills, although that is probably a topic for another day and another debate. I have made many suggestions to the Government, all of which I think Labour would find unpalatable. I have, for instance, suggested possible methods of making gas much cheaper, thus reducing prices for all our constituents and affecting real incomes in a way that would please me, but is not often favoured by my party.

I think that the first part of the motion is flawed because what it proposes would not solve the underlying problem, namely, the tax increases left by the outgoing Government, but I am not very happy with the second part either. The Minister said that he did not think the Opposition had done their sums properly before proposing the measure to deal with tax avoidance, which they say would pay for the temporary lower duty rate. It was interesting to hear from him that the Labour Government had considered a scheme relating to travel costs, but had decided that it would be unwise to pursue it. We do not know whether they made that decision because of the impact that it would have on people or because it would not bring in enough revenue, but it appears from what the Minister said that there was an issue involving the amount of revenue that it would raise. For those two reasons—it would not solve the duty problem, and the numbers do not add up—I think that it would be unwise for the House to support the motion.

As for the coalition Government’s amendment, I find myself particularly in agreement with the final words, in which we are asked to welcome

“the Government’s commitment to do more to help with the cost of living in future”.

I was interested to hear the Minister not only say that he understood the points that many of my right hon. and hon. Friends had been making about the level of fuel duties, but imply that action might be forthcoming in the autumn statement and the subsequent Budget statement to tackle that or related problems. I shall be happy if the Government tackle the over-burden of taxation in a variety of ways. I do not think that we need be too prescriptive tonight. We know that an autumn statement is coming up, and we know that there will be a Budget statement after that. However, I want to address my few remarks in this short debate to the issue of what the commitment to do more to help people in the future might amount to in those two important statements of Government policy.

The first point that I hope the Government will grasp is that this country’s problem is not that it is undertaxed. If we look at the budgets and the state of the national finances, we see that there is every sign that successive Governments have tried to increase the tax burden substantially to keep pace with accelerating current public spending. I think that we have now reached the point of no return—the point of saturation. The high rate of income tax introduced by Labour has led to a big fall in income tax receipts at the top level, which is not very surprising—and which, of course, is of no interest to Labour Members. They had their little jibe about millionaires, but they should be asking themselves what tax rate will cause rich people to make the maximum contribution to filling the massive financial hole in which we find ourselves.

We are well above that rate now, as the figures clearly indicate. I think that the Government will find that their higher rate of capital gains tax also collects rather less revenue than before, or than they would like, and that fuel duties, while probably still contributing some increment to taxation, are not creating as big an increment as they would like either, as people simply cannot afford all the fuel that they used to buy because the duties are so high.

We know that more than 60% of the pump price—and the price of petrol and diesel in this country is currently very high—goes, in one form or another, to the UK Government. Of course, part of the rest of the price goes in taxes to other Governments so that they can produce the fuel in the first place. A massive amount of tax is being taken by the British Government directly, along with the 60%-plus that is taken by them indirectly through the tax on oil companies, and by foreign Governments in their taxation on the oil. The motorist is seen as an easy target for huge amounts of tax in an attempt to meet the bills. I hope that, when considering ways of easing the cost of living, the Government will bear in mind that motorists and business drivers—people who are trying to power the economic recovery—are incurring very large bills through this particular tax.

I think that all Members agree with two propositions about the economy. First, we would like it to grow faster, and secondly we would like to make big cuts in public spending by getting people back to work, so that they can earn more in jobs than they can receive in out-of-work benefits. Those are the aims that the Government must pursue. They have told us that they wish to make work more worth while. It is now clear that the economy has had a good job generation capability in the private sector over the last couple of years or so, and that is very welcome. However, we now need to ensure that we can reduce public spending by getting many more people into jobs, so that they require less benefit support, and we need to do that partly by cutting tax rates, so that we can collect more revenue in a friendlier way.

There is no doubt that we have tax saturation, and the Government need to take that on board for the purposes of the autumn statement and the Budget. We should reject the rather foolish motion, which was never going to ensnare many Conservatives—Labour will have to get better at ensnaring Conservatives, if that is its game—and support, and ensure that the Government deliver on, their proposal to do more about the cost of living, because that is a very real issue which worries many of our constituents.

--- Later in debate ---

[Mr Bain]

Tax credits helped to sustain family incomes in that period, but that is precisely the part of the tax and benefit system that is under such great assault from the Government the right hon. Gentleman supports.

We need a long-term strategy to tackle declining living standards, but there are short-term measures we can take now that will help ordinary families. We can have a cut in VAT and not proceed with the 3p rise in fuel duty next January. Both those measures would help to restore growth to an economy that has been starved of it for a year, and which is smaller now than at the time of the Chancellor’s comprehensive spending review of October 2010.

Despite a decrease in the headline consumer prices index inflation rate from 5.2% to 2.2% since last October, costs of basic goods such as electricity and food are going up. Average electricity bills are up by £200 since the coalition took office, taking the average bill to £1,310 a year. Costs for childminders for the over-2s in Scotland have risen at nearly twice the CPI inflation rate this year. Living costs are, therefore, soaring for millions of people.

[Fiona O’Donnell]

My hon. Friend missed out one boast the Minister made, which was about the creation of private sector jobs. In my constituency, many of those jobs are for care workers on the minimum wage and on a zero-hours contract. Those workers need a car to be able to sustain even that level of employment.

[Mr Bain]

I entirely agree. Most of the jobs that have been created over the last couple of years have been part-time, insecure, low-hours posts. We have soaring under-employment in our country, with as many as 3.3 million people unable to secure sufficient working hours to make work pay. Nothing in the amendment would deal with that trend.

Combined with a VAT rise under this Government, fuel duty rises are particularly regressive. In 2009-10 the poorest quintile paid 3.5% of their disposable income in fuel duty, compared with just 1.8% paid by the top quintile. Overall, in the first year of this Government indirect taxes took 31% of the disposable income of people in the lowest fifth of earners, compared with just 13% among the wealthiest fifth of earners, and that was an increase from the previous fiscal year. According to the latest ONS study of factors affecting the retail prices index and CPI inflation measures, two of the major factors driving upward pressures were the price of clothing and footwear, which rose by 4.7% between August and September this year, and the rising cost of motor fuel, with petrol up by 3.9p per litre and diesel up by 3.5p per litre, compared with falls of 0.3p per litre in the previous year. These changes contributed 0.12% to the shift in the CPI inflation rate. In the year to this September, motor fuel costs alone rose by 2.8%. The case for action is therefore clear.

All these trends must be considered in the context of our low growth. The International Monetary Fund recently downgraded its estimate for UK GDP by 0.6% for this year and by a further 0.3% for next year. That is a crushing verdict, showing that the Government’s policies have sucked even more demand from the economy—as much as an additional £76 billion given the new evidence of the destructive multiplier effects of the Chancellor’s austerity measures. As the National Institute of Economic and Social Research has established, implementing the Government’s preferred rise in fuel duty in January would further weaken growth by 0.1% of GDP next year and keep unemployment higher than it needs to be some 48 months since the downturn began.

That is why I hope Members across the House will tonight take this opportunity to release some of the pressures ordinary households and businesses are facing by voting to postpone any rise in fuel duty until at least April.