Fuel Prices and the Cost of Living

Mark Pawsey Excerpts

Wednesday 16th March 2011 Commons Chamber

[Mark Pawsey (Rugby) (Con)]

It is a pleasure to follow the hon. Member for Scunthorpe (Nic Dakin), but I am disappointed that he chose to repeat the remarks of Opposition Members on the attendance of Front Benchers in this debate. It is pretty reasonable for us to expect that they would be working hard on a most important Budget, which will be delivered in this Chamber in only a week’s time.

I want to concentrate on the effects of fuel costs on small businesses. The success of our small businesses will be crucial to our work in rebalancing our economy, achieving economic growth and clearing up the economic mess left behind by the Labour party. Certainty and stability in the price of fuel are critical for small businesses—in some cases, they are more important than the price itself, although small businesses suffered massively as a result of rising fuel prices implemented by the previous Government over the past few years. In 13 years, the duty increased from 36p to 57p a litre.

Let me give the example of a medium-sized business in my constituency, Rugby. It is a business that I know well, because I owned and ran it for 25 years before arriving in this place. With 10 vehicles—five delivery vans and five cars for representatives—we served customers around the midlands, and the cost of fuel was a major budget consideration for us. In November each year, I would set my budgets for the following year, and try to estimate the price of fuel over the coming year. In recent years, that became almost impossible. In just the past two years—between January 2009 and January 2011—fuel costs have increased by £1,000 a month. The price per litre went up from 98p to £1.29 in that period; it is now closer to £1.40. The business is now spending £3,000 a month on fuel instead of £2,000. That is £12,000 in additional annual costs attributable to fuel alone. That comes directly from the bottom line; it is a reduction in the profitability of the business, which means that there is less available to reinvest in the business.

As was alluded to earlier, there is evidence from the business community that some suppliers are using the increase in the cost of delivering goods as a reason for price increases to small businesses. That is detrimental to small business profits and is inflationary. When fuel costs change, there are significant implications for distribution costs. Small businesses suffer disproportionately, because they are often in a weaker negotiating position and are thus unable to recoup the shortfall from their customers.

Certainty of price is what small businesses need, so that they can plan. That is often more important to them than price in isolation. I am therefore very sympathetic to the fuel duty campaigns calling on the Government either to freeze fuel duty or to implement the fuel stabiliser. To me, the fuel stabiliser seems a responsible decision, and although I recognise the complexity involved, I support any measure that will decrease the burden on small business.

The motion calls for a reduction in VAT on road fuel to take it back to 17.5%. As the Economic Secretary to the Treasury reminded us, a separate rate of VAT, as well as being illegal under EU law, will have no impact whatever on small businesses, because most of them simply reclaim VAT. If the motion were accepted, it would, of course, lead to additional tax complication for small businesses and make it more difficult for them to prepare their paperwork.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

The hon. Gentleman makes an excellent case on small business and its financial concerns, but how does he think the price of fuel will affect the cost of running vehicles in the Home Office, the Royal Mail fleet, and the Department of Health?

[Mark Pawsey]

The point that I am making is that the most important thing in any organisation is the ability to budget accurately across the business. The stabiliser proposal will deal with that; a reduction in VAT simply will not have any effect on that at all.

It is my contention that Labour Members are to blame for the situation that we are in, because this January, the Government implemented a rise in fuel duty for which the previous Government had legislated; the previous Government raised fuel duty 12 times when in office, and they planned for six further rises to take place after the general election. Businesses are looking forward to seeing what measures the Chancellor will bring forward in the Budget in a week’s time to ease the burden on the important small business sector.