Kerry McCarthy
Main Page: Kerry McCarthy (Labour - Bristol East)Department Debates - View all Kerry McCarthy's debates with the HM Treasury
(13 years, 10 months ago)
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Justine Greening
I shall ensure that I respond to my hon. Friend on that issue. A variety of concerns about the cost of motoring have been expressed in constituencies throughout the country in recent years.
I hope I can reassure Opposition Members that we are getting on with the process of requesting a derogation by trying to arrange some pilot schemes. I am sure they will be pleased to learn that, although we are still considering the exact scope of the pilots, we have announced our intention of including the Inner and Outer Hebrides, the Northern Isles and the Isles of Scilly, should we be given the necessary dispensation. I assure Members that we are pressing ahead as fast as we can, and we should appreciate their support in helping us to complete the process. I hope that they will be able to overcome any political barriers, do the right thing and back up the coalition Government as we go through this process over the coming months.
We recognise the importance of fuel prices to motorists and businesses. While we are looking at options in the run-up to the Budget, which I will discuss this afternoon, we can have one of two debates today: we can continue to argue about the problem and waste the opportunity presented by today’s debate by scoring points, or we can have a frank and open debate about how to reach the best solution and how we can find common ground. For instance, do we agree that the price of fuel and the affordability of motoring are important for motorists? The answer is yes. Do we agree that the unpredictable way in which the oil price fluctuates can create difficulties for households and businesses when it comes to budgeting? The answer is yes, although the Labour party never recognised that point in government, and I doubt whether it recognises that point in opposition—if it does, perhaps the hon. Member for Bristol East (Kerry McCarthy) will explain why it has suddenly changed its mind after having been booted out by the electorate.
Kerry McCarthy (Bristol East) (Lab)
I am pleased that the Economic Secretary wants to have a constructive debate this afternoon and does not want to engage in party political point scoring. Given that conciliatory approach, will she confirm that a Conservative Government were the first to introduce the fuel duty escalator at 3% in the March 1993 Budget, which they increased to 5% in the November 1993 Budget?
Justine Greening
The hon. Lady wants to go back into history. The previous Labour Government left a huge fiscal deficit, and we have to get to grips with those ginormous debts, so the position is entirely different. The previous Labour Government left not only debts and deficit, but tax rises that will unfold over the coming years. In opposition, the Lib Dems and the Conservatives discussed helping motorists, and we still want to see what we can do to help them. Given the state of the public finances when they were handed over to us, the Labour party in opposition should be thoroughly ashamed. We have waited in vain for an apology to the British people for the state of the public finances, and I suspect that we will have a long wait before we hear any of them say, “Sorry.”
The most depressing thing is that the main adviser to the former Chancellor and former Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), is now shadow Chancellor. It is like returning the car keys to the man who crashed the car in the first place, which is the worst thing for the British electorate.
Justine Greening
I can only reiterate what I have just said, which is that we are considering the exact scope of the scheme, but it is helpful to hear some of the issues that Members have in their constituencies. We are pressing ahead and will need European approval.
Kerry McCarthy
The Minister is being very generous. I am slightly confused, because my understanding was that it was Conservative party policy to look at the fuel duty stabiliser and Liberal Democrat policy to look at the rebate and the rural derogation. She has spoken for more than half an hour and focused almost totally on the rural derogation, so will she, before concluding her remarks, tell us the current position on the fuel duty stabiliser?
Justine Greening
I think that I have been very clear on that. In opposition and in government, we have always recognised the impact on motorists of the unstable oil price, which feeds through to pump prices. In setting up a stabiliser, we need to ensure that it works as intended, so the first step was to ask the Office for Budget Responsibility to look at how oil prices feed into the economy and affect public finances. We have commissioned that work, as the hon. Lady will know, and now need to take on board its outcomes before looking at how it feeds into policy making. It would not be right to pre-empt the Budget. Indeed, when the hon. Member for Dundee East was asked for further details, he said that he needed some time, which indicates that this is a complex policy area—too complicated for the Labour party when it was in government.
In conclusion, we want to treat motorists fairly, but we must also act responsibly by ensuring that we tackle our record national debt and the financial deficit, which will not be easy. I will not hide from the House the fact that that is a difficult balance to strike, so difficult that the previous Government chose to ignore it completely. That is also the approach they have adopted for tackling the deficit, offering no credible alternatives to our policies and, in the case of fuel duty, no viable alternatives to their own policies, because it is their fuel duty escalator that is causing the problems.
Once again, it has been left to the coalition Government to clear up the mess left by the Labour Government and look at how we can reach a fair resolution on fuel duty, get our economy back on its feet and support our businesses, families and, in this case, motorists. I look forward to the rest of the debate and hope that we can have an open and honest discussion on the problems faced by motorists across the country and possible solutions. I look forward to hearing from Members in the run-up to this year’s Budget what they think is the best way forward.
Kerry McCarthy (Bristol East) (Lab)
I congratulate the hon. Member for Dundee East (Stewart Hosie) on making a powerful case on behalf of his constituents—along with the interventions from his colleagues—about the impact that people living in remote rural areas can feel as fuel prices go up. He did make a very powerful case on behalf of his constituents, and Labour Members do understand the impact that motorists are feeling as fuel prices go up. I might represent an urban seat, but as a Member of Parliament in the south-west I am very much aware of the issues that are faced.
Stewart Hosie
I thank the hon. Lady for saying that I made a powerful case, but Dundee East is very much an urban seat. It has a rural hinterland of course, but my constituency is half the city. I know where Bristol is; a wee bit of geography would be great.
Kerry McCarthy
The hon. Gentleman makes a valid point. He was speaking on behalf of his colleagues in the more remote parts of Scotland, obviously, rather than on behalf of his own constituents. I thought that perhaps his constituency stretched a little further than the city boundaries.
For Governments, when considering fuel duties there is always a difficult balance to be struck among the needs to raise revenue and balance the public finances; to address environmental concerns about increasing road traffic and emissions, to which there has not been much reference in this debate; and to ensure that the motorist and especially people who have to rely on their cars—people who do not have a choice because of where they live and the environment in which they live—are not disproportionately penalised. The previous Labour Government endeavoured to strike that balance, despite the points that the Economic Secretary to the Treasury made. That was why, for example, in years when fuel prices rose, Labour chose to put the fuel duty escalator on hold—to help motorists meet those rising costs. It is a tricky balance to strike, however, as today’s debate demonstrates, and there are no easy answers.
Justine Greening
To clarify matters, is the formal Labour party position that the fuel duty rise should now go on hold?
Kerry McCarthy
If I can adopt the mantra that the hon. Member for Dundee East first used and the Minister then picked up on, I should say that that is a matter for us to discuss when we get round to the Budget negotiations. Today, we are here to discuss the two main proposals to ameliorate the impact of rising fuel prices, particularly on rural areas. We are talking about rural areas, rather than about fuel duty prices across the board.
The dog that has not barked during this debate—the thing that was most noticeably missing from the Minister’s speech—is the fact that motorists are being hit hard by the increase in VAT to 20%, which has helped push petrol prices up to their current record levels.
Stewart Hosie
It suddenly strikes me that, when the Labour Government had their fiscal stimulus policy, they cut VAT by 2.5 percentage points and increased fuel duty by 2.5 percentage points to compensate, but that, when VAT went back to 17.5%, the fuel duty rise was maintained. Does Labour now regret not reducing fuel duty in line with the increase in VAT?
Kerry McCarthy
Those matters were also affected by fuel prices at the time, but it is not my position to apologise for, or to express an opinion on, what my predecessors did.
The VAT rise now is the important thing. VAT went up at the beginning of the year from 17.5% to 20%. According to the Library, the VAT rise increases the cost of a litre of petrol by about 2.6p, assuming that it is passed on in full. That compares with the fuel duty increase in January of 0.76p per litre, so the VAT rise to 20% is hitting the motorist harder and people in rural areas, who rely on their cars most and have to travel longer distances, particularly hard.
Mr MacNeil
Is there any tinge of regret among Labour Members that for at least four years the previous Government did absolutely nothing on a rural fuel derogation?
Kerry McCarthy
I will deal later in my speech, if I may, with the rural fuel derogation and the problems that we see in implementing it.
The VAT rise did not have to be imposed. It flew in the face of all the warm words that Conservative politicians uttered before the election about ending the war on motorists, helping hard-hit families and keeping fuel costs down, but now it has been done and motorists are paying the price.
Let me turn to the fuel duty stabiliser, or regulator, which the Minister glossed over very quickly.
Mr MacNeil
If we are talking about glossing over, I feel that the hon. Lady glossed over my question. Will she take this opportunity to apologise for her Government doing nothing for four years on the rural fuel derogation?
Kerry McCarthy
As I said, I am coming on to the derogation, but it is not my place to express such opinions.
In principle, on paper, the fuel duty stabiliser sounds like a fairly simple, reasonable proposition—as oil prices go up, fuel duty goes down, and as oil prices drop, fuel duty goes up, so the motorist pays more or less the same for fuel and the Exchequer gets more or less the same in revenue. However, economics are not that simple.
The idea of the regulator has been floated for some time. During the debate on the 2008 Finance Bill, the Scottish National party spokesman, the hon. Member for Dundee East, suggested that a statutory instrument should implement an automatic mechanism so that as additional income from VAT receipts came in, it could be used to offset fuel duty in direct proportion. However, the regulator was based on rises in oil prices, not on rises in VAT receipts. It was assumed that one would flow from other—the hon. Gentleman reiterated that assumption today—but that is not necessarily the case, as the Office for Budget Responsibility has said.
Kerry McCarthy
I would like to make some progress.
There are other concerns about the stabiliser. The then Liberal Democrat spokesman, who is now Secretary of State for Business, Innovation and Skills, said at the time of the 2008 Finance Bill debates that the idea of a fuel duty regulator was “unbelievably complicated and unpredictable”. He said that the Exchequer would have to predict the net windfall, and then:
“May I suggest that there might not be any net windfall at all?”—[Official Report, 16 July 2008; Vol. 479, c. 339.]
The OBR has now confirmed that.
Labour’s then Chief Secretary to the Treasury said:
“In the face of a world slowdown, to take any one tax in isolation and claim that there is a windfall available to spend is economically illiterate, irresponsible or just disingenuous.”—[Official Report, 16 July 2008; Vol. 479, c. 331.]
She was basically saying—this was echoed by the hon. Member for Taunton Deane (Mr Browne), who was the junior Liberal Democrat spokesman at the time—that we cannot consider these revenues in a silo. Yes, oil revenues might go up, which might provide a boost to the nation’s finances—although I stress the word “might”, because it does not necessarily follow that increased revenues come from increased oil prices—but other things might happen that affect revenue flows, and it is irresponsible not to look at everything in the round. Hypothecation can box us into a corner and hamper our choices, and that is a real problem in the case of the stabiliser.
Justine Greening
Was the Chief Secretary who referred to economic illiteracy the same Chief Secretary who left us, as an incoming Government, a note saying that there was no money left?
Kerry McCarthy
No, I was referring to my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper). The Minister may have got the hint when I said “She”.
If a stabiliser were introduced, there is the question of whether the cut in duty would be passed on to the consumer at the pump. That would be very difficult to achieve without further Government enforcement and interference. I am not sure how that would square with the Government’s purported dearly held belief in the free market and dislike for state interference in the operation of the free market.
Kerry McCarthy
I thank the hon. Gentleman for that intervention, but I am talking about the fuel duty stabiliser. I appreciate his confusion, because that has not been discussed much in this debate. The rural derogation is a separate issue. I am talking about how a stabiliser would be enforced.
Despite the concerns about a fuel duty stabiliser that were raised during the 2008 Finance Bill debates and afterwards, and the obvious difficulties in implementing one, the Conservatives could not resist dangling the prospect of reduced petrol prices before motorists’ eyes. They published a consultation document in July 2008, which proposed the stabiliser:
“when fuel prices go up, fuel duty would fall. And when fuel prices go down, fuel duty would rise”.
That continued to be Conservative party policy until polling day. A week before polling day, the Prime Minister told voters on a visit to a Coca-Cola plant that
“we’d be helping with the cost of living by trying to give you a flatter and more constant rate for filling up your car”.
It was suggested by Conservative politicians in the media that it would be included in the new Government’s first Budget.
Before the election, this Government made all the right noises about tackling high petrol prices. They led the public to believe that they would take action to slash fuel duty and bring down the price of petrol at the pumps. Since then, they have done nothing. Actually, that is not quite true. They have done nothing to implement the fuel duty stabiliser, which they made such a song and dance about before the election, but they have hit the motorist by whacking up VAT to 20%. They have increased petrol prices, not cut them.
Even the Office for Budget Responsibility, set up by this Government to give independent, impartial advice, has said that the fuel duty stabiliser would not work. The underlying economics of the stabiliser contain a simple, basic assumption that when oil prices rise, the Government receive an unexpected windfall from taxes on North sea oil production. The OBR said that that is not the case, at least not in the long term. In “Assessment of the Effect of Oil Price Fluctuations on the Public Finances”, which was published on 14 September last year, the OBR reported that a temporary rise in the oil price would have a negligible effect on the UK public finances, and that a permanent rise would create a loss. The OBR said that it would be difficult for the Government to introduce a fair fuel stabiliser without a significant cost to the Exchequer:
“There is no improvement in the public finances to be used for stabilising the pump price in the case of a permanent shock.”
In fact, a permanent increase in fuel prices would have a negative impact on the public finances after a year, given the effects on demand, inflationary pressures, household income and consumer spending.
Stewart Hosie
The hon. Lady seems to be labouring under a misapprehension. The fuel duty regulator would temper spikes. If there is a structural change in the oil price, the baseline figure against which a trigger is measured has to be reset. We have all seen the OBR figures, but the OBR does not say that we should not have a short-term stabiliser to stop spikes; it says that there is no benefit in the long run, as she said. The regulator is designed to smooth out short-term spikes, not to stop structural changes in the oil price.
Kerry McCarthy
What I am saying is that a correlation between oil price movements and revenue has not been established by the OBR. In fact, it has said that that is not the case and that in the short term a temporary rise in the oil price would have a negligible impact on revenue. Therefore, the question is what money would be used to offset the stabiliser or regulatory mechanism that the hon. Gentleman’s party wants. If it does not come from the revenue, where does it come from?
Stewart Hosie
I remind the hon. Lady that the OBR’s press notice was clear that the temporary £10 rise would deliver an overall effect in year 1 of £100 million. That is not insignificant.
Kerry McCarthy
The new head of the OBR, Robert Chote, said in an interview about a week ago that its analysis
“suggested that a fair fuel stabiliser would be likely to make the public finances less stable rather than more stable”.
If a £10 increase in oil prices was passed through, the assumption is that it would add 7.4p per litre at the pump. To offset that would cost £3.7 billion, which is £1.3 billion more than the consequential rise in oil and gas revenues. It might have been a good idea for the Conservative party to carry out that sort of analysis before making promises that it could not keep. All the Economic Secretary has to say today is that the Government will consider the OBR’s report.
I also ask the Economic Secretary what conversations she has had with people in the industry about the impact of fuel prices. I have been contacted by the Retail Motor Industry Federation, which tells me that it has written to the Chancellor and Prime Minister four times about the matter recently, with no response at all. It has stated that the Government have
“made no attempt to engage with industry”
and that it wants the policy of a stabiliser to be dropped, because it would be
“costly and a huge administrative burden”.—[Interruption.]
Sorry, is the Economic Secretary saying that the RMI has not written to the Chancellor or the Prime Minister?
Justine Greening
The hon. Lady says that there has been no engagement, which is completely wrong. Only about three weeks ago, we held a workshop on tax policy in relation to travelling and the environment, at which a range of stakeholders from a variety of sectors of the travelling industry came to the Treasury to talk about their challenges. Many said that it was the first time they had been invited in for any kind of constructive discussion.
Kerry McCarthy
The Economic Secretary says that as though I were the one saying that there had been no engagement. I am not, it is the RMI that states that the Government have
“made no attempt to engage with industry”.
Perhaps she could place in the Library a copy of the response from either the Chancellor or the Prime Minister to the letter that the RMI says it has sent four times, and copy me in. That would confirm whether there has been an attempt to have a dialogue.
I turn to the other proposal under active consideration, the rural derogation. As we have heard, the Government are planning to pilot it in the inner and outer Hebrides, the Northern Isles and the Isles of Scilly, although from what the Economic Secretary said I am not sure whether those are the definite areas for the pilot or whether the matter is still under consideration. My understanding is that there would be a maximum 5p per litre discount on petrol and diesel sold in those areas.
Will the Economic Secretary elaborate on just how far the informal conversations with the European Union have gone? Have they been about just the pilot scheme, or have there been discussions about introducing the scheme to a significant proportion of the British isles at some time in the future?
Following on from the question that my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) asked, will the Economic Secretary explain on what basis the islands in question were chosen for the pilot as opposed to other remote rural areas? Does she not think that it will be difficult to extrapolate from pilots carried out in island areas how such a scheme would work in remote mainland areas, particularly those from which it is not so far to travel to urban areas where petrol is in greater supply? Will she explain why the pilot scheme is to be so limited, rather than a larger pilot that could have more evidential benefit and be used to show how the scheme would work across the country?
We have a number of other concerns about the rural derogation. There is a long-standing principle that excise duties are charged on a universal basis, and it would set quite a precedent to depart from that practice. As has been said, the scheme would be difficult and expensive to administer, because at the moment duty is levied when oil leaves the refinery, not at the point of retail sale. That takes us back to the point that the hon. Member for Argyll and Bute (Mr Reid) made when I was talking about the stabiliser. How would the system be policed if there were to be differential duty at the point of sale? It sounds like a complex administrative system would be required.
Justine Greening
I am trying to follow the hon. Lady’s argument, but it is not clear to me. Will she confirm whether she supports the Government’s attempt to get a derogation in place by introducing pilots?
Kerry McCarthy
It is up to the Economic Secretary to answer the questions. We are certainly interested in the conversations that she is having with the EU, but we have major concerns about whether it is practical to take the proposal forward. We would like more information to be convinced that it will solve the problem.
The rural rebate proposal was, of course, a Liberal Democrat manifesto commitment, and it seems that the Government are now taking it up. The hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) referred to the fact that he has raised the matter on many occasions over the past 12 years, and when he was his party’s transport spokesman he proposed a duty differential based on the Scottish Government’s method of having eight categories to distinguish between urban, rural and remote areas. Again, that could become quite complex. It would be quite easy to calculate rebates in the case of geographically isolated, sparsely populated areas, but in southern Scotland, where there is more of a patchwork of those categories, it could be difficult.
Dr Whiteford
For clarity, will the hon. Lady tell us whether her party is saying no to a derogation and no to a stabiliser?
Kerry McCarthy
Again, it is for the Economic Secretary to tell us what her policy is on the stabiliser and so on. We are quite happy to discuss and consider proposals for tackling the problem of increased fuel prices in rural areas. However, when the OBR is telling us that the fuel duty stabiliser would cost the public purse huge amounts of money and be difficult to administer, and when real and valid concerns are being raised about whether rural derogation pilot could be transposed over to mainland Britain, we are right to ask questions and require answers before we decide whether we can support the proposal.
Kerry McCarthy
I want to conclude now. I have taken quite a lot of interventions, and hon. Members will have the opportunity to pose as many questions as they like in their own speeches.
Finally, I ask the Economic Secretary to confirm several things. Has the Conservative party dropped the fuel duty stabiliser policy in the light of the OBR’s fairly clear and damning verdict on its practicability? Is the policy now restricted to the rural derogation, and what time scale does she think would be appropriate for its introduction? It will take some time to get it through the EU, and considerably longer to roll it out to the UK as a whole. In the meantime, is she actively considering the impact of the VAT increase on fuel prices? That is hitting people now, and not an issue for the future.