Taxes on Motor Fuel

Helen Whately Excerpts

Monday 23rd May 2022 Westminster Hall

[The Exchequer Secretary to the Treasury (Helen Whately)]

It is a pleasure to serve under your chairmanship, Ms Elliott. I thank the Petitions Committee for organising this important debate and all hon. Members who have contributed today, especially the hon. Member for Gower (Tonia Antoniazzi), who opened the debate.

I also thank the more than 100,000 people across the UK who signed the petition calling for a reduction in fuel duty and VAT. Those signatures are a reflection of how hard high fuel prices are hitting people. As well as being Exchequer Secretary, I represent a rural constituency, and I know that for most people in my constituency, there is no alternative to going by car for most journeys. As hon. Members have said, whether it is getting to work, doing the school run, going to the supermarket, the doctor or the dentist, or visiting family, there is usually no alternative. If we add to those journeys all the business journeys—the man in a van, delivery drivers, logistics and so on—we can see that so much of our economy is reliant on road transport.

The UK has about 30 million drivers, and the vast majority of us fill up our vehicles at the petrol station. As many hon. Members have said today, fuel prices have dramatically increased in recent months, and they reached their all-time highest levels this spring. I know that this comes at what is already a painful moment for many households, with so many pressures—ranging from heating bills to higher food costs in the shops—on people’s budgets. I welcome the Petitions Committee survey assessing the impact of increases in the cost of motor fuel on petitioners, which reflects what I have heard from my own constituents and from people I speak to up and down the country. Whether that is the parent struggling to put food on the table for their children or the care worker providing vital care across her community, we hear you, and the Government have stepped in to help, with support measures that add up to £22 billion.

However, we should not ignore the context. We are part of a global trend, driven by global issues—by the surge in demand post pandemic, exacerbated by Putin’s war in Ukraine. And just as these circumstances are not unique or specific to the UK, so they cannot be solved by the UK alone.

Prices at the pump are not set by the Government, and nor are crude oil prices more widely, but the Government have taken action to help people with recent unprecedented price increases. After the launch of this petition last October, my right hon. Friend the Chancellor of the Exchequer took the decision, at autumn Budget, to freeze fuel duty rates; this was the 12th consecutive year of the freeze. He then went further. In the spring statement, the Chancellor announced that fuel duty for petrol and diesel would be cut by 5p per litre. Unlike many international counterparts, who have introduced shorter-term relief for motorists, we have this measure in place for a full 12 months. This is only the second time in 20 years that fuel duty has been cut, and this time, it is the largest cash-terms cut ever across all rates of fuel duty at once. It represents a tax cut worth £2.4 billion in 2022-23. Coupled with the fuel duty freeze, it is worth £5 billion overall and equates to a reduction in fuel duty of about £100 over the year for the average car driver.

[Justin Madders]

The Minister will have heard the suggestion that the Chancellor has raked in more through increased VAT receipts than he has given away in this fuel duty cut. Will she say whether she agrees with that or not?

[Helen Whately]

The hon. Member comes to exactly the next point that I was going to make in my speech. The petition called for a VAT reduction, as did the hon. Member for North Ayrshire and Arran (Patricia Gibson) when she intervened. Given that VAT is applied on top of fuel duty, the 5p duty cut on petrol and diesel also results in a VAT reduction. It effectively translates to a reduction of 6p per litre overall. That said, a VAT reduction is not generally the best way to provide help with fuel costs, particularly because it would not help many businesses, many of which already claim back VAT paid on fuel for business use. About 40% of fuel is used by businesses. If we had just focused on reducing VAT instead of fuel duty, that would have left businesses more exposed to fuel price increases, in turn impacting the cost of goods for consumers. Making the focus fuel duty rather than VAT means that businesses, as well as consumers, will benefit from that tax cut. Also, by helping businesses with the fuel duty cut, we ensure that the duty cut benefit flows through to people who do not own cars, as well as those who do, because of the importance across the supply chain of the cost of fuel.

[Peter Grant]

Did I mishear the Minister? Is she trying to persuade us that if we cut VAT on fuel, it will lead to an increase in costs to the customer somewhere else? Is that what she is trying to say?

[Helen Whately]

That is not what I just said; I said that if we particularly focused on reducing VAT on fuel, that would not result in a saving to many businesses, because businesses can claim back VAT. By cutting fuel duty, we are benefiting businesses and the whole supply chain, as well as consumers who buy fuel.

[Patricia Gibson]

The Minister, if I understand her correctly, is saying that cutting VAT will not necessarily help business, and that the best way to help them would be by cutting fuel duty. From what the Minister said, I do not know what the answer is. Perhaps the answer is to cut VAT to help consumers, and to put a substantial cut on fuel duty to help reignite the economy, reduce the cost of living and control inflation.

[Helen Whately]

That goes a long way into the broader economic questions about the right way to deal with the crisis we are in, and how we raise money if we are to make further tax cuts to provide further support to consumers. As I have mentioned, and as I am sure the hon. Lady well knows, we have already put in support worth £22 billion to help people across the country with the cost of living. That includes £9 billion to help people with energy bills—some of that will be through council tax rebates of £150—and that money is already going into many people’s pockets. [Interruption.] The hon. Lady shakes her head and says that that is not enough, but the Chancellor has been clear that he stands ready to do more. We do not yet know what the retail cost of fuel will be in the autumn, and we are absolutely concerned about the rising costs to people. We have already taken steps, and that is what we are talking about today.

I want to come back to VAT, because it has been suggested that the Treasury might be getting some kind of VAT windfall. Overall, the Office for Budget Responsibility is forecasting that VAT receipts will now be lower than it had expected in the autumn. There is not some great surge in VAT coming through to the Treasury.

[Justin Madders]

Will the Minister give way?

[Helen Whately]

I will move on and keep to the topic of the petition, if that is okay with the hon. Gentleman. Another question that came up earlier, particularly from the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier), was on the extent to which the fuel duty cut has been passed through. I am well aware of that concern and the suggestion that suppliers have been taking the benefit of the £2.4 billion tax cut.

To provide some context to this, the spring statement was made at a time of sharp rises in international oil markets, which would have taken some time to feed through to the pump. Diesel has faced specific pressures, because of the particular role of Russian exports in the European market. That has, unfortunately, contributed to diesel reaching all-time high prices this month. The background movement in prices makes the 5p cut harder to see. The Government have been clear that we expect all in the supply chain—from the moment fuel duty is owed to when fuel is bought at the forecourt—to pass the fuel duty cut through to consumers.

The Chancellor and the Business Secretary wrote to industry on the day of the announcement to set out that expectation. The Business Secretary wrote to industry on this matter again last week. The Competition and Markets Authority is closely monitoring the situation. To quote its chief executive, Andrea Coscelli, the CMA stands ready

“to take action should there be evidence that competition or consumer protection law has been broken in the fuel retail market”.

He went on to say that a formal investigation may be considered appropriate,

“which could ultimately lead to fines or legally binding commitments”.

The Government will continue to undertake longer-term analysis to establish the extent to which the Chancellor’s cut may have been buried beneath further wholesale price increases, and to ensure that the market does not fail to pass on the benefits of the duty cut to those refilling at the pump.

I have also heard public discussion of something called PumpWatch to regulate prices at the pump. Some comparisons have been made to Ofgem, the energy regulator, and the role of the price cap in the domestic energy retail market. However, that price cap was introduced in 2019 specifically to correct the market failure identified by the Competition and Markets Authority, which showed that the conditions for effective competition were not present in the market. While the energy price cap has shielded customers from volatile energy prices, it was specifically designed to better protect disengaged customers from being offered poor-value deals.

To date, we have not seen evidence that the same situation is happening in the fuel market, because pump prices are conspicuously displayed outside fuel stations to encourage competition and allow drivers to make comparisons and find the best deals, but I reiterate that if the CMA finds evidence of anti-competitive behaviour in the market, it is clear that it will not hesitate to act.

[James Murray]

As the Minister is drawing to a close, will she take this opportunity to let us know her opinion on our plans for a windfall tax?

--- Later in debate ---

[Helen Whately]

It is interesting that the hon. Gentleman asks that question. I noticed that although this is a debate on fuel duty, he and other hon. Members took the opportunity to talk quite significantly about a windfall tax. The Chancellor and the Prime Minister have made it clear that it is not the Conservative Government’s instinct to reach for a windfall tax; that is not the most naturally attractive option to us. We want to see the energy sector invest in North sea oil and gas, which is important to our transition. However, the Chancellor has also been clear that no option is off the table.

To return to the topic of the debate, the Government take fuel duty costs seriously, and we have responded with a substantial duty cut to help motorists across the UK. The Government and the CMA continue to monitor the situation extremely closely, and Members should be in no doubt that further action will be taken if necessary to ensure effective competition. The 5p cut in fuel duty is part of a £22 billion package of support to help people with the cost of living. As the Chancellor has made clear, we stand ready to do more.