Fuel Prices

Lord McCrea of Magherafelt and Cookstown Excerpts

Tuesday 15th February 2011 Westminster Hall

[Dr William McCrea (South Antrim) (DUP)]

It is easy for the coalition to knock the previous Government, and I have no objection to that at all. However, the coalition Government will be judged by what they do rather than what they say about the past.

I draw to the hon. Gentleman’s attention the fact that many rural dwellers do not use cars as a luxury. They use them because there is no alternative. Many of my constituents have no good local bus service and no train. We should bear in mind that they use their cars not out of luxury but from necessity. The Government say that transport sits at the centre of the rural economy; let them prove that they mean that.

[Mr Reid]

I agree. In my own constituency, particularly on the islands, there are no trains, buses are few and far between, and it would not make sense for the local council to subsidise a bus service for only one person. That would be less beneficial to the environment than people using their cars.

I agree that it is easy to knock the previous Labour Government and that this Government must be judged on their record. It must also be pointed out that we face an enormous budget deficit and that the budget has to be balanced. I recognise that fuel duty brings in a lot of money for the Treasury, but I urge the Chancellor to find another way of raising revenue. Fuel duty discriminates against rural areas in a way that no other tax does, and almost any other tax increase to substitute for the fuel duty escalator would be an improvement. I will doubtless be considered a heretic at the Treasury for saying this, but why not put up the basic rate of income tax? The pillars of the Treasury may collapse at the idea that such heretical thoughts are still around. Every Chancellor for the past 30 years seems to have viewed bringing down the basic rate of income tax as a totemic symbol, but it is a much fairer tax than fuel duty because its impact is equally felt throughout the country, whereas fuel duty impacts far more heavily on rural areas. I therefore urge the Chancellor to abandon the fuel duty escalator policy that he inherited from the previous Government, and raise any other tax in order to balance the budget.

In conclusion, let us get the islands’ fuel duty pilot up and running as soon as possible, and abandon Labour’s fuel duty escalator in the Budget.

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[Ian Paisley]

At home, if I march, I need to fill in an 11-bar-one form. The hon. Member for South Staffordshire (Gavin Williamson) may not be familiar with that form, but here I have the luxury of parading anywhere I want. If I support the Government’s proposal, I will happily lead the charge through the Lobbies and he will follow in my wake.

On average, petrol at home is about £1.30 or £1.35 per litre, depending on where it is bought. Of that maximum £1.35, 80p is a combination of taxes. People have talked about holding back the 1p increase in April, which will make a difference of about 2p or 3p at the pump, but we need something that will make about 25p difference at the pump if we are going to get not only the rural community, but hauliers and local industry moving again, and people with get up and go to recognise that the economy is starting to breathe and move again. The Government have a serious duty to address that.

My hon. Friend the Member for Upper Bann (David Simpson) has touched on the issue of smuggling. High prices encourage smuggling, and on my island it is incredibly easy to smuggle, because we have a land border with another nation state which has a different fuel price. If ever there was an open invitation or open goal to the smuggler, that is it. The Minister will know that in Northern Ireland alone—these figures are staggering—£200 million is lost each year to Her Majesty’s Revenue and Customs because of smuggling. In the Republic of Ireland, a further €140 million is lost to their Exchequer because of fuel smuggling. On top of that, environmental waste and damage are caused as a result of removing the various tracers and markers from fuels. That causes untold environmental pollution and harm.

If we have a fuel stabiliser, or the fuel price differential is altered and brought in to recognise those differences, the opportunity to smuggle and to cause crime and waste will no longer exist. We are only encouraging crime if we do not address the matter. That is another solid reason why the Government must get behind dealing with the issue of having fair fuel prices. They could, of course, do so through a taxation cut.

[Dr McCrea]

Does my hon. Friend agree that people are looking for clarity about how we arrive at the price of our fuel in the first place? Soaring prices at the petrol pumps are causing anger, particularly bearing in mind that many of the companies concerned recently announced massive increases in profits.

[Ian Paisley]

Clarity is important. Yesterday, I took the opportunity to check how the price differential is made up. Some 58.9p on every litre is duty, and a further 22.3p is VAT. The price of the actual commodity—whether it is diesel or petrol—is currently around 46p. Then, of course, the person who is pumping the fuel has to make a small profit, which is usually a matter of pence—about 5p. There is something seriously wrong when 80p of that is all tax. As I have said, it is getting to the point when people in remote rural communities can no longer get around. The closure of petrol stations in my constituency means that it is 16 miles between some villages and the local petrol station. If someone runs out of fuel, they are stuffed. People have to start thinking ahead, buying fuel and bulk storing it. That is not safe; it is hazardous. We must recognise that we are putting immense pressures on our rural communities. Such a situation must be addressed.

I leave hon. Members with those thoughts. As I have said, like many hon. Members, I am prepared to leave it to the Government to come up with a solution that we can get behind. I am glad that the Minister is here—I can see that she is taking notes—and I hope that she is able to give us some encouragement at the end of the debate. I look forward to the Budget, which will be the opportunity for the Minister to respond.

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[Sheryll Murray]

I could not agree more, but I want to stick to the issue of the price of fuel, which is having an effect on our farmers, our hauliers, our fishing industry and on small businesses in my constituency. In South East Cornwall, most businesses are tiny and cannot stand the impact of increasing fuel prices on their cash flow for much longer—it cannot continue.

To sum up, Cornwall has a large number of residents who have no access to the mains gas supply, or other, cheaper alternative supplies of heating. The increase in fuel duty affects the ability of a lot of my constituents to provide heating in their homes.

[Dr McCrea]

Does the hon. Lady acknowledge that there is frustration in the community that, when a barrel of oil on the international market goes up, the price rises immediately, yet whenever there is a decrease, there seems to be a long period of time before the price deflates again? Is that not another issue that needs to be tackled by the Government?

[Sheryll Murray]

The hon. Gentleman sets out a very good case for the introduction of a fair fuel duty stabiliser, which would cushion that effect.

Finally, I would like to mention the rural rebate and make the case for the whole of Cornwall to become a pilot for the rural rebate. We already have convergence funding, so there is already recognition that Cornwall is a special economic area. I ask the Chancellor to ensure that Cornwall is considered as a recipient of a rural rebate.

10.26 am

--- Later in debate ---

[Justine Greening]

My hon. Friend raises an interesting point, and this debate has been an excellent opportunity for hon. Members to set out the challenge that fuel prices pose for their communities and businesses. It is difficult—and it would not be right—for me to pre-empt the coming Budget, but my hon. Friend sets out some of the broader issues. This debate is not just about how the oil price feeds through to the price at the pump, but about recognising that rural areas face a particular challenge. I say to my hon. Friend the Member for High Peak (Andrew Bingham) that people in urban areas do understand the impact of fuel prices—they face them too—but we recognise that there are additional challenges for rural areas.

As we have heard, public money is short and the deficit we inherited is unprecedented in modern times. The previous Government had no answers or real ideas—we have heard no ideas today—to tackle the mess that they created. There was something ironic about the note from the outgoing Chief Secretary to the Treasury that said, “There’s no money left.” In many respects, it was even worse than that; we were left with a deficit and debts.

It is worth running through the many rises in fuel duty that we have seen. There was a rise of 2p per litre on 1 December 2008; a rise of 1.8p per litre on 1 April 2009; and a rise of 2p per litre on 1 September 2009. A rise of 1p above RPI was announced in the 2009 Budget. That was phased in from April last year, with a second rise of 1p per litre in October. A range of future increases was announced in the 2009 Budget, one of which has particularly concerned hon. Members in this debate. In spite of all those rises, we picked up an enormous deficit and, according to the outgoing Government, there was no money left. That shows what an absolute mess they handed over which, as has been pointed out, places constraints on what we are able to do. However, we know that we must tackle that mess, and tackle it we will.

We have had to take difficult decisions. Nevertheless, in the midst of that we have taken steps to increase the personal allowance, which will rise by £1,000 from April this year. That will help families on the lowest incomes, and 880,000 taxpayers will be taken out of paying income tax altogether. Parents will be able to take advantage of increases in child tax credits, and pensioners will receive above-indexation increases in the state pension. We have managed to do something that the previous Government did not do in 13 years—re-establish the link between the state pension and earnings. Corporation tax for businesses is being cut from 28% to 24% over the next four years.

[Dr McCrea]

The Minister must acknowledge that those measures apply across the board and to those in urban areas as well as rural areas. Rural areas are being penalised because of the price of petrol, and we need something to deal with that issue.

[Justine Greening]

That is why I am about to talk about the fair fuel stabiliser and the rural fuel rebate pilot. We have tried our best to tackle the deficit, but the way to do that is to encourage growth, help business get back on its feet and take away tax rises and the jobs tax—it would have been catastrophic if employment had cost companies more. We managed to get rid of the worst effects of that, but there is a particular issue with fuel.

In opposition, we talked about a fair fuel stabiliser because we recognised the problem posed by oil prices in feeding through to the price at the pump. When we came into power, one of the first things we did was to ask the Office for Budget Responsibility to look specifically at how the price of oil affects our economy. It said that although there may be some tax receipt growth, higher energy and fuel prices do not help the economy—a point reiterated by many hon. Members. It pointed out that a rise in the oil price has a range of other effects on the economy and does not feed through into extra tax receipts in a straightforward way. People spend less money, goods become more expensive, and certain benefits increase as a result of a rise in oil price. Therefore, it is a difficult issue.

I reassure hon. Members that we are looking at a fair fuel stabiliser and at other measures to tackle the problem of fuel prices. There are a range of options, but we must ensure that whatever we do is fair and affordable. Tax is a matter for my right hon. Friend the Chancellor, and I would not be so presumptuous as to pre-empt him. He will update the House during the Budget, which is only a few weeks away.

The rural fuel duty rebate was mentioned. It is clear that changes to the fuel price have a particular effect on those who live in rural areas and, as we have heard, have a greater reliance on petrol and diesel and face significantly higher prices. That problem is exacerbated by the lack of alternative transport, and realistically for many people the car is the main way of getting around.

My hon. Friend the Member for Carmarthen West and South Pembrokeshire (Simon Hart) spoke about why the definition of rurality is so important. Interestingly, the EU does not have exact criteria to define rurality, but it will look at the rebate in terms of state aid, and take into account a range of factors such as the cost of transporting fuel, average fuel prices, public transport and access to petrol stations. It is able to look at the issue in a flexible way, which is helpful.

When we came into government, we announced our intention to introduce a rural fuel duty pilot. The pilot will deliver a duty discount of up to 5p per litre on all petrol and diesel, which will save some drivers in rural areas more than £500 a year. We are still looking at the exact scope of the scheme; today’s debate has shown that many hon. Members have particular concerns for their communities and the rurality faced by those communities. It is not as easy as one might hope to define what is rural and where a rural fuel duty might apply, but the pilot aims to get on with that process and work through those challenges. We want the scheme to go ahead in the Inner and Outer Hebrides, the Northern Isles and the Isles of Scilly, but we have not yet finished the exact definition of the scheme. Before it goes ahead, the scheme must get clearance from the European Union. Those discussions are ongoing and are currently at an informal level as that is the best way to proceed to ensure that the pilot scheme is approved. We will update the House further at the time of the Budget.

To conclude, the dramatic increase in world oil prices and the previous Government’s increases in fuel duty have pushed up prices at the pump. We understand the concerns of families and businesses across the country, and we are taking every action possible to help those most in need. At the same time, we must act responsibly and ensure that we tackle our record national debt. That is not easy; it is a difficult balance to strike and we are considering all options in the run-up to this year’s Budget.