Road Fuel Duties

Kerry McCarthy Excerpts

Tuesday 13th September 2011 Westminster Hall

[Kerry McCarthy (Bristol East) (Lab)]

I congratulate my hon. Friend the Member for Central Ayrshire (Mr Donohoe) on securing this debate. I am aware that the number of signatures on the e-petition that is doing the rounds calling for a debate on fuel duty is rapidly approaching 100,000. Since joining the shadow Treasury team, I have spent much of my time debating fuel duty with the Economic Secretary. It is indicative of just how strongly Members of Parliament feel about the matter, and of how much their constituents are affected by high fuel prices, that we have returned to the issue. It also suggests that the Government’s limited action so far—the 1p cut in fuel duty—has not done enough to satisfy people’s concern and its impact on their lives. For example, my hon. Friend the Member for Central Ayrshire referred to the impact on a nurse in his constituency.

The small increases in the cost of living and the small cuts add up. The cost of parking at a hospital may have doubled, and travel to work may cost an extra £100 a month. Such increases make the difference between people being able to get by on a modest income and being unable to make ends meet. Sometimes they must make the tough decision to give up work, because they simply cannot afford it. I want to allow plenty of time for the Economic Secretary to reply, so I will not elaborate further, but people are being hit across the board. Fuel duty rises and the cost of petrol are obviously a significant element in that.

Before the Budget in March, we called on the Chancellor to review the duty increase, and we welcomed his decision following the example of previous Labour Governments, who had cancelled or postponed rises in duty when circumstances suggested that would be a good idea because fuel prices were putting too harsh a burden on people. We welcomed the 1p cut in duty, but the savings lasted only a short time, and prices at the pump remained high. According to figures published by the Department of Energy and Climate Change this morning, the price of one litre of petrol has increased over the past seven days by 0.38p to 135p and diesel by 0.44p to 139.4p. That makes prices 20p and 22p respectively more expensive than in the equivalent week last year. I am sure that some hon. Members in rural constituencies will say that those average prices do not reflect the real prices in areas that are ill-served by petrol stations.

Clearly, the 1p cut has not been sufficient for motorists feeling the squeeze. That is partly because the Government added another 3p to the price of a litre of petrol by hiking up VAT in January 2011. Motorists are also facing the prospect of a 3p increase in January 2012, and a further increase in August 2012. That comes at a time when the Institute for Fiscal Studies is warning that the coalition’s tax rises and spending cuts will squeeze household budgets for the next 10 years, with families over the past year having suffered the largest fall in living standards for 30 years. Median net household income is down 3.5%, the consumer prices index stands at 4.4%, and the retail prices index stands at 5%, which is more than double the rate at which earnings are growing. The Office for National Statistics has highlighted that fuel costs are one of the most significant contributors to the CPI and are adding indirectly to the cost of our weekly food shopping, because distribution costs rise with fuel prices.

I need not remind hon. Members that fuel prices affect not only affect households, but are having a serious impact on businesses, which are already struggling in a flatlining economy. Only this month, the Freight Transport Association reported that the high cost of fuel remains the biggest cause for concern among haulage operators. A survey by the Federation of Small Businesses found that its members were most concerned about the fuel tax rise in January. It warned that small and medium-sized enterprises would be severely affected.

I shall move on to what the Government have said they will do about the problem. Before the election, great play was made of the fair fuel stabiliser. David Cameron said that he would introduce a mechanism to ensure that when oil prices went up, prices at the pump would go down and vice versa. That was widely seen to be unworkable, and has been proven by the fact that since coming to power the Government have not acted on it. The stabiliser in the form suggested by the Prime Minister and the Chancellor has not materialised. Even the Office for Budget Responsibility said that it would make fuel prices less stable rather than more stable.

The Treasury then moved to funding the 1p fuel duty cut with the windfall tax on the oil companies, which the Scottish First Minister described as cack-handed. It was introduced almost at the last minute, and the oil companies that it affected were not consulted. The reduced duty is funded by a rise in the supplementary charge on oil companies from 20% to 32%. The Government were then hit by evidence that that would lead to fewer new fields being developed, and greater reliance on foreign imports, which are, of course, more expensive. Under pressure, the Treasury announced in the summer that it would allow companies to offset some start-up costs against tax, but that only served to show the Government’s muddle on the fuel duty regime. They float various ideas, but when those ideas are subject to any scrutiny they do not stand up to cross-examination, and the Government have to make policy on the hoof.

That is partly why we tried to amend the Finance Bill to require the Chancellor to assess the impact of tax on ring-fenced profits. As I argued at the time, that seemed to be in line with the Government’s professed commitment to more consultation and greater transparency in tax policy, instead of coming up with measures without consulting industry and then having to make U-turns..

Another measure that the Chief Secretary announced and which seems to be running out of steam is the pilot scheme for the rural fuel duty rebate, which he announced last October. He was keen on that when he was in opposition, but it seems to be more complicated than the Treasury expected. The rebate would allow a discount of up to 5p a litre on petrol in the inner and outer Hebrides—

[Mr MacNeil]

There is talk in London of the scheme being complicated, but it need not be. It is happening in many places throughout Europe. The only complication seems to be the length of time it is taking to put it in place.

[Kerry McCarthy]

At the moment, it is suggested that the scheme will apply to the inner and outer Hebrides, the northern isles and the Isles of Scilly. The Minister will have to explain, but perhaps the delay is due to the fact that there is considerable pressure from other areas where fuel prices are very high. The hon. Member for Newton Abbot (Anne Marie Morris) is no longer in her place, but she made the case for her constituency in the south-west having a similar scheme.

People in the Scottish Highlands, where large distances need to be travelled and the scarcity of retail petrol stations adds to the cost of petrol, think that they, too, should be included in the scheme. Do the Government think that the scheme should be restricted only to the islands, or should it be extended? If the islands are a particular case, perhaps the Minister will clarify what that is. It is not clear whether the island populations would feel any benefit or how the discount could be delivered, and there have been warnings that such a scheme would risk putting petrol stations out of business.

Under the original idea, upfront costs would fall on retailers who might have to wait two months to be reimbursed by the Treasury. For many small retailers that is simply not viable, and if petrol stations in remote areas are forced to close, motorists will have to travel even further to fill up their tanks. I would appreciate a response from the Minister about how that could be avoided if the pilot schemes for rural islands are introduced.

[Mr Reid]

The hon. Lady has referred to the original consultation proposals, which the Government quickly changed because of feedback from retailers and the cash-flow problem that would have occurred. That feature is no longer in the revised proposals, so the issue has been solved.

[Kerry McCarthy]

I thank the hon. Gentleman for that clarification. It seems that the briefings from people lobbying on the issue are slightly out of date.

In conclusion, the Government’s efforts to reduce the burden of high fuel bills on households and businesses seem to have run out of steam, rather like a car running out of petrol. Ministers continually try to ignore the fact that their VAT rise has had the greatest impact on petrol and diesel prices by adding almost 3p to the price of a litre of petrol and £450 to the average family’s annual bills. As we know, VAT has a disproportionate impact on those who can least afford it, and evidence shows that that is harming the economy. The Treasury is happy to ask the EU for a derogation on fuel duty for the remote Scottish islands but, as we have heard today, people’s budgets all over Scotland and around the UK are being put under pressure by the cost of petrol and diesel, and the Government refuse to listen.

[Mr Jim Cunningham]

Does my hon. Friend recall that after the 1997 election, the first thing the Labour Government did was cut VAT on fuel? That helped fuel poverty.

[Kerry McCarthy]

I recall that, and there are various other examples. Hon. Members are keen for the Minister to respond so I will not elaborate on that point, but the fact is that the Government have not even tried to get a derogation from the EU on fuel prices. Opposition Members argue that the rise in VAT earlier this year is having a seriously damaging impact on the economy and, at least in the short term until the economy recovers and economic growth returns, that it should be reversed.

I have posed a number of questions to the Minister, and I look forward to hearing not only a recognition that fuel prices are impacting on families and warm words about how the Government appreciate that people are being hit by the cost of fuel, particularly in rural or remote areas, but something clear about what the Government intend to do. The 1p cut in duty is incredibly insignificant in the grand scheme of things, and the Government must act because people and businesses are suffering. It is time for action.

--- Later in debate ---

[Anas Sarwar]

rose—

[Kerry McCarthy]

rose—

[Justine Greening]

I will give way to the hon. Gentleman, but then I would like to make some progress and talk about fuel, because that is clearly the point of the debate. However, I am happy to have a debate on the economy, because many people in Britain recognise exactly whose fault it is that the economy is in the state that it is in today—it is the fault of the Labour party.