Taxes on Motor Fuel

Patricia Gibson Excerpts

Monday 23rd May 2022 Westminster Hall

[Patricia Gibson (North Ayrshire and Arran) (SNP)]

This petition on taxing motor fuel is not just about motor fuel. Ultimately, it is about the whole cost of living crisis and what levers the UK Government can pull to address it, if they choose to do so.

Fuel costs have spiralled so much in recent months that prices have been breaking records. Indeed, petrol prices have broken records on 26 separate days in 2022. Fuel duty has remained at around 50p a litre for the past 12 years, but consumers also pay 20% VAT on the total cost of their fuel at the petrol pump. That means that consumers pay tax—VAT—on fuel duty, so they currently pay over 80p in tax on every litre that they buy. As I say, they are paying a tax on the tax. That is before the costs of extraction, purchase, shipment and forecourt sales are added. The Treasury is raking in 20% of the total cost at the forecourt, with fuel price increases bringing in additional VAT, amounting to billions of pounds, all of which is helping to accelerate inflation. As the cost of fuel has risen, so has the VAT being raked in by the Treasury—vast additional revenue for the Chancellor.

There was an attempt at providing some relief for motorists and consumers when the Chancellor announced a 5p cut in fuel duty in his spring statement. However, as we all know, that measure was woefully inadequate. We know that, in theory, a duty cut benefits all drivers, but as we have heard, this cut is not always passed on to drivers. Indeed, the RAC has shown that that seemed to be the case after the spring statement. In any case, it is clear that even if the 5p cut in duty was passed on, it would simply be swallowed up by spiralling prices—as indeed it was—so its effect would never be truly and meaningfully felt by those it was intended to help.

A cut in VAT would be much more effective, because VAT is charged on the total cost of the petrol or diesel, so even if the price rises, the amount of VAT would be reduced. That would be a much more impactful measure to try to help motorists and consumers with spiralling costs.

The situation with inflation is now so serious that a very serious measure to ease inflationary pressures must be implemented. I contend that halving VAT on fuel until the cost of living crisis is under better control is now essential and overdue. The eye-watering cost of fuel does not just hurt motorists—although it certainly does that, as the cost of filling up the family car becomes more and more of a struggle. It also drives up the cost of every good and service that we buy. Every single item on our supermarket shelves has been delivered by haulage companies for at least part if not all of its journey to its destination. When their fuel costs rise, so too does the cost of those goods.

Like others, I have been urging the Chancellor for months to make a serious and meaningful cut to VAT on fuel in order to better control inflation across the economy, because fuel costs impact every area of our economy. Anyone can see that cutting VAT on fuel is good for everyone across the UK. It will ease pressure on the incomes of families as they try to maintain their family car, it will ease pressure on the cost of doing business, and it will keep the price of our groceries and other goods down. Everyone will benefit and inflationary pressures will ease. That will benefit the whole economy and will more than make up for the loss of VAT receipts to the Treasury from such a cut. This is a no-brainer: it is a win-win for the economy, consumers and business.

We are living through unprecedented times, and bold action and brave hearts are needed. The dithering and delay must end. Halving VAT on fuel will have an immediate and positive impact. I hope the Minister will tell us that she will be happy to go back to the Chancellor and his Cabinet colleagues and tell them to get on with this and cut VAT on fuel significantly, because it is long past time.

--- Later in debate ---

[James Murray (Ealing North) (Lab/Co-op)]

Thank you, Ms Elliot, for the chance to respond to the debate on behalf of the Opposition. I congratulate my hon. Friend the Member for Gower (Tonia Antoniazzi) on leading this important debate on the e-petition relating to taxes on motor fuel. As she set out, the fact that it has been signed by over 100,000 people underlines what we all know from our constituents: the rising cost of fuel is a pressing and urgent part of the wider cost of living crisis that is hitting people across the country.

With inflation at its highest in decades, the cost of living crisis is causing immense hardship and driving households into poverty. At the same time, this Government are alone in making us the only G7 country to be raising taxes on working people at such a difficult time. In that context, the rise in the price of fuel is being felt particularly acutely. The Office for National Statistics has published data on fuel prices that confirms what everyone knows when filling up their cars: there has been a consistent weekly increase in price since the start of 2022, with the highest rises occurring since March. As an RAC spokesperson recently said:

“March 2022 will go down in the history books as one of the worst months ever when it comes to pump prices… To describe the current situation facing drivers at the forecourt as ‘bleak’ is therefore something of an understatement.”

[Patricia Gibson]

The hon. Gentleman is talking about the impact that prices are having across the whole of the UK. Every community and constituency is affected. Does he share my disappointment that there are no Tory speakers? No Tory MPs appear concerned enough to have participated in this debate.

[James Murray]

Like the hon. Member, I find it very depressing to see no Conservative Back-Bench Members apparently interested in this debate. However, if the best many of them can come up with is to suggest people buy value brands or get a different job, I am not surprised they have little to add to the debate.

As my hon. Friend the Member for Gower said, the Petitions Committee’s survey to the respondents of the e-petition has helped bring to life some of the real impacts that fuel price rises are having on the lives of people across the country. Those responses include the supply teacher who explained the necessity of reducing working hours due to the cost of driving to different schools. An NHS worker reported the challenge of transporting her disabled children to the special educational needs school, and having to cut down on food in order to balance the cost of fuel. A carer reported being unable to attend appointments to give essential care to vulnerable people; a taxi driver was unable to make ends meet. Parents reported having to remove their children from nursery as the cost has become unsustainable, and people have been unable to visit elderly relatives.

Fuel prices have been hitting people across the board. At the same time, businesses have reported that the increased fuel costs have made it more challenging to recover from the losses suffered during the pandemic. Respondents felt that the temporary 5p reduction in fuel duty did not go anywhere near far enough—something that we have heard from many Members today—and was ineffective, as the saving was quickly cancelled out by rising prices. When it comes to the price of fuel, respondents confirmed what we had all concluded about the Government’s actions so far. Following the spring statement and the announcement of a temporary 5p per litre cut in fuel duty, the Chancellor was quick to arrange a glossy photoshoot in a borrowed car at a petrol station forecourt, but the reality is that the 5p cut in fuel duty has been quickly eclipsed by the rapid rise in the overall price of fuel.

As we know and as other hon. Members have said, fuel prices are just one of many pressures hitting people’s lives, and the Government’s response to the cost of living crisis has fallen woefully short of what is needed. People across the UK are seeing the biggest squeeze on their finances in a generation, while at the same time, oil and gas producers’ profits have shot up. As has been widely reported, BP’s chief financial officer said that

“we’re getting more cash than we know what to do with”,

while its chief executive has said that the current rising prices are making BP a “cash machine.” In the first three months of 2022, 28 of the largest oil and gas producers made close to $100 billion in combined profits, with Shell, for instance, making over $9 billion—almost three times what it made in the same period last year.

Faced with oil and gas producers receiving such bumper profits while everyone else suffers the cost of soaring energy bills, Labour has called on the Government to implement a simple, effective and fair solution: levy a windfall tax on oil and gas producers’ profits to help cut people’s bills by up to £600. People need that help, as they are left with no other options. Martin Lewis, the founder of MoneySavingExpert, has said that he no longer has any ideas for how people can save money to cope with the massive surge in the cost of living.

The fact that people are struggling and do not know what to do makes it incredible that the Government have twice voted against Labour’s plans to address this cost of living crisis by imposing a windfall tax on oil and gas producers’ profits. We are left wondering what on earth their objection is, when consensus seems to be growing by the day that a windfall tax is the right thing to do. Current Treasury Ministers may not know what to do, but the previous Financial Secretary to the Treasury, the right hon. Member for Hereford and South Herefordshire (Jesse Norman), has said that the arguments against a windfall tax

“at present are very weak.”

He added that Margaret Thatcher would have backed a windfall tax on energy companies.

Of course, in recent weeks, Government Ministers have taken a wide range of positions. We have heard opposition to the plan for a windfall tax from the Health Secretary, the Foreign Secretary, the Business Secretary, the Northern Ireland Secretary, the Attorney General, the Minister for Brexit Opportunities and the Deputy Prime Minister, and yet the latest position from the Chief Secretary to the Treasury is that

“all options are on the table.”

Every day of delay hurts people across the country. When the Minister responds, I urge her to give some indication of when the inevitable U-turn will happen and the Government will implement a windfall tax. We have been calling for this for months, and we are all waiting for the Government to finally do the right thing.

The Treasury’s failure to act exposes a deeper failing at the heart of Government. While we have been pressing the idea of a costed and effective plan to levy a windfall tax to cut energy bills, the Government are out of ideas and out of touch when it comes to helping people with the hardship they face. The Chancellor needs to get a grip on this situation, so when the Minister responds, I again urge her not to add to the delay, but to simply tell us when the Government will go ahead with the windfall tax that we all know is needed.

--- Later in debate ---

[Helen Whately]

That is not what I just said; I said that if we particularly focused on reducing VAT on fuel, that would not result in a saving to many businesses, because businesses can claim back VAT. By cutting fuel duty, we are benefiting businesses and the whole supply chain, as well as consumers who buy fuel.

[Patricia Gibson]

The Minister, if I understand her correctly, is saying that cutting VAT will not necessarily help business, and that the best way to help them would be by cutting fuel duty. From what the Minister said, I do not know what the answer is. Perhaps the answer is to cut VAT to help consumers, and to put a substantial cut on fuel duty to help reignite the economy, reduce the cost of living and control inflation.

[Helen Whately]

That goes a long way into the broader economic questions about the right way to deal with the crisis we are in, and how we raise money if we are to make further tax cuts to provide further support to consumers. As I have mentioned, and as I am sure the hon. Lady well knows, we have already put in support worth £22 billion to help people across the country with the cost of living. That includes £9 billion to help people with energy bills—some of that will be through council tax rebates of £150—and that money is already going into many people’s pockets. [Interruption.] The hon. Lady shakes her head and says that that is not enough, but the Chancellor has been clear that he stands ready to do more. We do not yet know what the retail cost of fuel will be in the autumn, and we are absolutely concerned about the rising costs to people. We have already taken steps, and that is what we are talking about today.

I want to come back to VAT, because it has been suggested that the Treasury might be getting some kind of VAT windfall. Overall, the Office for Budget Responsibility is forecasting that VAT receipts will now be lower than it had expected in the autumn. There is not some great surge in VAT coming through to the Treasury.