Fuel Prices

Mark Pawsey Excerpts

Tuesday 15th November 2011 Commons Chamber

[Mr Walker]

I completely agree with my hon. Friend. This is one great advantage of cutting fuel duty rather than cutting VAT, which Labour Members argue for.

[Mark Pawsey (Rugby) (Con)]

I would like to make the point that a lot of freight companies are filling up on the continent. If we reduced the amount of duty, particularly on diesel, they would be encouraged to fill up in the UK, which would bring additional revenue to the Exchequer.

[Mr Walker]

My hon. Friend brilliantly pre-empts my next point. I was going to say that most business users also use diesel, which, as my hon. Friend the Member for Romsey and Southampton North (Caroline Nokes) pointed out, is an important issue. One concern I particularly wanted to raise is the fact that diesel in this country is so much more expensive than anywhere else in Europe. I am told that this is not simply a matter of taxation as the rates of fuel duty are set equally for unleaded petrol and for diesel, but of refining capacity, which the hon. Member for Ynys Môn (Albert Owen), who is no longer in his place, also mentioned. Also relevant is the fact that North sea oil has traditionally been better suited for the production of unleaded petrol than for diesel. However, it does seem extraordinary that one can drive across most of Europe seeing prices for diesel consistently lower than those for unleaded, only to arrive in this country and find that there is a 7p differential in the other direction. In fact, we are one of the few countries that treats diesel and unleaded exactly the same for tax purposes, and many others, including France and Spain, tax diesel much less than we do.

Perhaps I should declare an interest at this point as the driver of a rather battered Y-registration diesel Golf with more than 150,000 miles on the clock, but my prime interest is that diesel tends to be the fuel of choice for business users and the freight and haulage industries. Its cost and the extent of taxation on it thus have a more direct impact on our economy and on prices in the shops than does unleaded petrol. Given the importance of diesel to business and the economy, will the Minister give special consideration to steps that could be taken to encourage the closure or reversal of that price differential, whether it be directly through fuel duty or indirectly through encouraging investment in refining capacity.

Like others, including my hon. Friend the Member for Wyre Forest (Mark Garnier), I am very concerned at the wide geographical price differentials within the UK. Although many have argued that this is a matter of rural sparsity and have put the case for a rural fuel derogation, which I accept, I want to put the case for urban centres such as Worcester that find themselves paying a higher price for fuel than their neighbours or competitors.

--- Later in debate ---

[Mark Pawsey (Rugby) (Con)]

I congratulate my hon. Friend the Member for Harlow (Robert Halfon) on the assiduous campaign he has fought on this issue, which has generated massive interest across the Chamber in response to the great pressure on our constituents. I was pleased to add my name to the motion, as I recognise the impact of fuel prices on individuals, particularly those in rural communities such as the villages around my constituency, many of whom have to rely on their car and spend a substantial proportion of their income on fuel.

In common with my hon. Friend the Member for Congleton (Fiona Bruce), I want to concentrate my remarks on the impact on business—and particularly on small businesses—as a generator of growth in our economy, just as I did when we last debated the matter on 16 March. I will deal first with the issue raised by my hon. Friend the Member for Worcester (Mr Walker): the price gap in the UK between petrol and diesel, which is up to 8p a litre. The duty is, of course, the same; it is the higher cost of production that leads to a higher price. That is the reverse of the situation 10, 15 or 20 years ago. Frankly, as the gap widens, there is a disincentive for business to run more fuel-efficient vehicles powered by diesel. There is no reason for having the same rate of tax on fuel, and having a lower rate for diesel would greatly assist business.

The differential between the price of diesel in the UK in comparison with mainland Europe is also important, as my hon. Friend the Member for Nuneaton (Mr Jones) said. That presents a significant advantage to overseas competitors, particularly haulage businesses, many of which are based in my constituency in the middle of England. The Government are losing revenue as UK-based operators fill up their tanks on the continent, and there is evidence that they are specifying vehicles with larger fuel tanks for the purpose. The location and size of those tanks also raise safety issues, especially in view of the horrendous accident on the M5 only a few weeks ago.

In our last debate on this issue, I said that businesses needed certainty and stability in regard to the price of fuel. That is often their most important consideration as they negotiate the prices at which they sell to their customers. I used to run a business that used delivery vehicles to supply goods. We had 10 vans and 10 sales reps. The cost of fuel was a major budget consideration for that small business. Between January 2009 and January 2011, it increased by £1,000 a month before VAT—£12,000 a year. Most of those increased amounts cannot be recouped, because businesses are not able to raise their prices. Loss of profitability and the fear of generating loss have led to massive concern about the price of fuel.

[Mr Marcus Jones]

I am sure that my hon. Friend will acknowledge that the problem is even worse for small businesses that are not registered for VAT and therefore cannot reclaim it.

[Mark Pawsey]

I also note that, according to research conducted by the Federation of Small Businesses, one in 10 businesses says that if something is not done about fuel prices, it will need to lay off staff. A quarter say that a freeze on wages is attributable to the cost of fuel, 36% say that they will have to reduce investment in new products and services, and 78% say that their overall profitability will be in jeopardy. The situation would, of course, have been worse under Labour, which—as we have heard from Government Members on many occasions—introduced a fuel duty escalator involving seven increases. Had it not been for the action taken by the Government, fuel would now cost 6p more per litre.

I know from my career before I entered the House how important fuel prices are to the business sector. I hope that in his autumn statement the Chancellor will be able to give the necessary support to hard-pressed households and to businesses.