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Mr. Quentin Davies (Grantham and Stamford): My right hon. Friend is touching on an important point. Is there not a serious danger of the public being bamboozled? They have been led to believe that the increases from the contingency reserve for health and education next year will buy more teachers, doctors or operations, adding to the output of those public services. It has not been explained to the public that a significant portion of that money will go on increased fuel costs and the consequences of the minimum wage--costs imposed on those services by the Government.
4.15 pm
Mr. Heathcoat-Amory: My hon. Friend puts it very well. What the Chancellor has done--the fuel increases are just one part--is to increase the cost of all public services while providing no extra money. That is a real expenditure reduction, which is already occurring.
The House should accept not just my word but that of the House of Commons Library, which has produced some very interesting figures that show that there is a real public expenditure reduction of £3 billion in the current financial year, rising to £5.25 billion next year. That is because of the extra inflation that the Chancellor is now projecting--part of which he has caused as a result of the Budget--which is colliding with the fact that there is no extra cash.
Dr. Rudi Vis (Finchley and Golders Green):
Will the right hon. Gentleman comment on the International Monetary Fund report concerning the Budget?
Mr. Heathcoat-Amory:
There is nothing that I would like to do more, but I do not know whether the Chair would allow such a diversion into the IMF report. I shall just say that the IMF spotted the fact that we have incipient overheating on our hands, yet the Chancellor chose not to use the Budget as an opportunity to correct that through fiscal tightening. To go on a little from the IMF report, the only way in which he did attack consumers directly was in the most inflationary way possible, by the immediate increases in indirect taxation. I do not think that the hon. Gentleman will derive much comfort from the IMF report to counter what I have just described.
There we have it. We saw on Budget day a large and immediate tax increase levied on motorists of all sorts, especially those in rural areas, who will have to bear the increase without any way of switching to other forms of transport--notwithstanding the fact that many of the alternative forms of transport, such as buses and trains, are also hit by the duty increase.
We have seen how the increase works through into higher industrial costs and damages competitiveness, especially in the sector most exposed to world competition, which is trying to export. We have also demonstrated that, by feeding through into general inflation in the public services, unmatched by any extra cash to compensate, the increase will have a highly damaging effect on public expenditure in the years ahead.
For all those reasons, I invite the House to support amendment No. 26, which seeks at least to limit the damage, by pushing back to November the increase in hydrocarbon duties. The amendment will not halt the damage completely, but at least it will bring some respite to the hard-hit sectors that are the first but not the only victims of the new Labour Government.
Mr. Clifton-Brown:
I wish to speak to amendment No. 26, which was tabled by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) and relates to the timing of the fuel duty increases. They would, of course, have been enacted in November, rather than almost five months earlier in the July Budget. A 6 per cent. increase in fuel duties introduced five months early probably amounts to an increase of about 7 or 8 per cent. in real terms on a year-on-year basis. That is a pretty swingeing increase in fuel duties in one year.
The increases hit particularly those in rural areas and, more particularly still, poor people in rural areas who have to rely on their cars to obtain the absolute necessities of life at, for example, the post office or their local doctor's surgery. Those who are relatively affluent will not be deterred from using their cars.
The Government should be implementing a mixture of "carrot" and "stick" measures. They should be trying to encourage people through fiscal measures such as those in clause 11--some of which are to be welcomed, as I shall briefly explain--as well as encouraging people and heavy goods on to public transport.
In my constituency, we have opened two rural stations and I am battling to open a third. We should press for such measures to encourage the use of public transport. Another initiative in my constituency is a community bus. The scheme is organised by the community and funded by various Government bodies and through fund raising. The bus is driven by a rota of volunteers, and its schedule is tailored to the needs of the community. The scheme has expanded and now runs three or four buses, having started with one. Sadly, the swingeing increase in fuel duty will increase the scheme's running costs. I ask the Financial Secretary to exempt good community schemes from future increases in fuel duty or allow them to claim a rebate, because we should encourage them.
The increase in fuel duty is 6 per cent. in real terms, or 6 per cent. plus inflation. If we assume that the rate of inflation over the longer term is some 3 per cent., the increase is some 9 per cent. That means that fuel duties will double, in nominal terms, in seven years; that is a swingeing increase. I urge the Financial Secretary to consider the effect that the increase will have on poor people, especially those in rural areas.
As I have said, I welcome some aspects of clause 11, especially the encouragement of ultra-low-sulphur diesel. Through fiscal and other measures, we should be able to encourage--in a reasonably short time--all diesel users, including heavy goods vehicle drivers and car drivers, to switch to low-sulphur diesel. We all know the effects of the sulphur pollution that belches from the back of unserviced HGVs and cars, and it is possible to see the particulates and the white smoke and to smell the sulphur. We should encourage a universal switch to ultra-low-sulphur diesel, through fiscal measures, as we did with unleaded petrol. Ten years ago, the market for unleaded petrol was around 10 per cent. Today, it is some 90 per cent.
There is now no case for super-unleaded petrol, as the hon. Member for Denton and Reddish (Mr. Bennett) knows because he was a member of the Environment Select Committee which considered it. An environmentally friendly clause 11 would have introduced a differential in the rate of duty on ordinary unleaded petrol compared with super-unleaded petrol. Such a measure could be considered for a future Budget.
My right hon. Friend the Member for Wells mentioned the inflationary effect of clause 11. One reason behind amendment No. 26--to delay the increase in fuel duty--was to try to mitigate that effect. The increase in fuel duty will have an effect on the price of all service and delivery goods. Huge numbers of motor cars, vans and HGVs will experience an increase in costs. Whether that is inflationary in the long or short term, when it eventually feeds through into the economy, is a matter for speculation. The notes on clauses suggest that the measure, which will raise some £300 million extra, will push inflation up in the short term by 0.25 per cent., but if duty goes up year on year, the cumulative inflationary effect will be much greater. That must be taken into account.
It is all very well to tax the motorist out of existence, but certain sectors of society will be especially adversely affected, including the poor in rural areas. It is all very well for an urban-dominated Government to ignore those people, but those who live in rural areas are often some of the poorest in the land. They depend on their motor cars as a necessity and the Government have a duty to consider their plight in future Budgets.
Mr. Swinney:
The previous Government increased petrol duty, which had a damaging effect on rural communities. Did the hon. Gentleman oppose that?
Mr. Clifton-Brown:
I am not sure what the hon. Gentleman is talking about. He is probably talking about Norman Lamont's 1992 Budget. If he will clarify his question, I will answer it.
Mr. Swinney:
The previous Government increased petrol duty by 5 per cent. over and above the inflation rate. The present Government have compounded that by increasing it by a further 1 per cent. The measure introduced by the last Government had a very damaging effect on rural areas.
Mr. Clifton-Brown:
We can argue about semantics. We raised the duty by 5 per cent. The figure is now 6 per cent., but, in real terms, it is up to between 7.5 and 8 per cent., and each percentage rise causes a little more damage. I ask the Government to consider the effect that is caused over a period. This is a fairly swingeing increase--but I do not want to be provoked into speaking at length.
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