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Mr. Michael Fabricant (Lichfield): Surely the answer to the question, "What is being achieved?" is that the Government can add taxes by subterfuge. If they tax through the Inland Revenue, the voter feels it. By doing it this way, they have achieved tax increases by stealth.
Mr. Dorrell: That is why I said earlier that I object to the policy as it is an increase in the tax burden that allows the Government, year by year, to deny that it is a tax increase brought about by the Budget, as they did in this year's Red Book. In a narrow technical sense, they are right. It was not a tax increase brought about by the Budget, because it was previously announced. However, it means that the tables in the Red Book are misleading, if they are intended to show a change in the tax burden from one tax year to another.
Mr. Bercow: Does my right hon. Friend think that, on 23 January 1995, when the hon. Member for Bristol, South (Dawn Primarolo), now the Paymaster General, complained in the Finance Bill Committee that 75 per cent. of the cost of a gallon of petrol or of diesel was accounted for by tax, it would have been helpful if she had explained that her intention, on becoming a Minister, was to increase the percentage to 85?
Mr. Dorrell: My hon. Friend makes his own point; it is a good one, and might be developed if, in response to the debate, the Economic Secretary were to set out clearly the Government's long-term intention for the escalator. The 85 per cent. to which my hon. Friend refers applies only at present. How much further is the policy to be pursued before we reach Ministers' objective?
Before I conclude my remarks, I want to mention the broader impact of the Euro-argument--to use that shorthand. We discussed that issue in Standing Committee, to the great merriment of Labour Members, who felt that those of us who favour active and positive involvement in Europe would find it difficult to engage in the debate. However, the issue clearly illustrates the principle of tax competition that should underlie our tax policy--indeed, it would be difficult to think of a better illustration. What is at stake is the use of the tax system to seek competitive advantage for this country vis-a-vis our continental neighbours.
The Government are busy making Britain uncompetitive, while a competition is taking place to which they are not responding. I believe in tax competition and that is why I think the Government should examine what their competitors elsewhere in Europe are doing; they should respond to that competitive pressure--it should apply to Governments just as it applies to everyone else in the economy.
One of the great benefits of an open liberal economy is that Governments--like every other agent--should be responsive, and should be subject to competitive pressure. The Government are answerable to a competitive marketplace, but they are not responding to the pressures exerted by that marketplace. Until they respond, our economy and those who work in it will carry a
heavier and heavier burden; they will pay for the Government's inflexibility with their jobs and their living standards.
Dr. Vincent Cable (Twickenham):
I shall speak about the broad principles of the escalator. Yesterday, the Liberal Democrats supported several Conservative amendments. The amendments were well made and well argued; we agreed with them on their merits. However, these amendments are opportunistic and cynical in the extreme. I fully intend to support the Government on the principle of the escalator. Some genuine problems have been raised--such as the international competitiveness of the road haulage industry--to which genuine solutions were proposed in Committee and during our debates in this place. I should be interested to know how far the discussions on the Brit disc proposal have advanced.
Such a regime would be far more targeted than the escalator. If the rumours are true, levies would fall most heavily on areas where congestion is worst. Instead of farmers or rural families in Caithness and Sutherland having to pay much higher petrol duty, the levies would fall most heavily on congested cities, which is where most pollution is generated and where there are extra social costs resulting from congestion. Therefore, the policy would appear to be sensible.
Another positive aspect would be that the Government had adopted an approach of decentralisation, as local authorities, especially the new mayors, would be able to make their own judgments. The reports also appear to suggest, although we do not know the details, that the Government are now committed fully to the principle of hypothecating revenue from taxation on transport. Yields from the congestion taxes would be fed back into either reduced vehicle excise duty or improved public transport.
All those would be positive developments, but we cannot have an intelligent debate until we know the details of the proposals. It could be--I suspect that it is--that the Chancellor is trailing a backdown from the whole principle of environmental taxation generally. We have already seen that trend in the abandonment of the policy of shifting from gas to coal, and the proposals might herald a continuation of it. Even if we get the information a little later than Brown and Grice, we would like to hear more from Ministers about where their thinking is leading.
Let me address a few comments to the Conservatives. My belief that their amendments are rather opportunistic is based on two reasons. First, there are the revenue implications of their proposal. As I understand it, the escalator is worth roughly £1.5 billion a year, which is a substantial sum. It is incumbent on those who attack the escalator and so break the cross-party consensus on its use to explain clearly and precisely how else that sum can be funded.
Secondly, and following on from that point, if the Conservatives want to lead opinion away from the concept of the escalator--which they promoted in office, with the support of the Liberal Democrats and the then Labour Opposition--do they intend to embrace the new philosophy, which the Government appear to be considering, of having road user charges? Support for the use of congestion taxes would seem to be compatible with the Conservatives' overall philosophy. Right-wing think tanks such as the Institute of Economic Affairs and the Social Market Foundation have long argued that such measures are the right way to deal with the problem, so will the Conservatives support their use? If would be helpful to all parties if we knew that, in London, controversial new taxes to deal with the problem would command all-party support.
If the Conservatives are leading us away from the escalator, what alternatives do they propose? To make that point slightly more general, if we do not have an escalator, how is the problem of pollution to be dealt with? There are two options, of which the first is to do nothing.
Mr. Tim Loughton (East Worthing and Shoreham):
I am following the hon. Gentleman's arguments with great interest. Can he explain how congestion taxes would affect freight drivers, who have to be in the centre of towns rather than in the highlands of Scotland because that is where their customers are and where they have to deliver goods to shops and factories? How would the introduction of congestion charges help them, as opposed to removing the absurdly high escalator on diesel fuel?
Dr. Cable:
That is a good question. However, since we do not know whether the Chancellor's new thinking focuses on petrol duty, the diesel escalator, or both, I cannot answer it. The hon. Gentleman is quite right to say that the road haulage sector faces a set of problems that are completely different from that facing urban commuters, against whom congestion charging is primarily directed. We need to know where the Government's new thinking is leading.
To return to my basic theme, my justification for the escalator is twofold. First, it is a market-friendly way of changing policy. It sends a signal to consumers--whether road hauliers or motorists--and to industry that they should change their behaviour. It is a price signal; it is an economically efficient way of changing behaviour.
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