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6.30 pm

Mr. Alasdair Morgan (Galloway and Upper Nithsdale): I would like to speak briefly to new clause 2, specifically in relation to fuel duties. I am glad that you called me,

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Mr. Deputy Speaker, because I would have hated to disappoint the hon. Member for Edinburgh, North and Leith (Mr. Chisholm), who would not otherwise have had a chance to listen to the "usual nonsense", as he called it, from the SNP.

It is a serious matter that fuel duties have been put up by more than the real rate of inflation, particularly for my constituency, which has the third lowest level of income of all the Scottish constituencies, but about the third highest level of car ownership. That is not because the people in my constituency, being of average lower income, are perversely buying cars and luxury items. It is because the ownership of a car, or often two cars in a family, is essential to earning a livelihood.

Therefore, to increase one of the principal costs of car ownership by more than the real rate of inflation is insupportable. Because the tax, certainly in Galloway and in many other rural areas, is paid by those on lower incomes, regardless of what those incomes are, effectively it is a regressive tax which is being increased by more than the rate of inflation.

That would be bad enough if tax were the only influence on the price of petrol, but it is not. The right hon. Member for Glasgow, Anniesland (Mr. Dewar), then Secretary of State for Scotland, said in the Scottish Grand Committee last year:

This June, the oil price touched $31 a barrel. The right hon. Gentleman does not seem to have displayed great foresight. Perhaps it is as well that he is not in charge of Treasury forecasts.

In the light of that, perhaps the Government thought that they could get away with such increases and their mechanism for them when oil prices were very low, and they thought that they were likely to remain low. That is no longer the case. Petrol has gone up for other reasons; it has gone up because the price of oil has gone up. That is a very good reason why the Government should revisit the mechanism for taxing petrol. There are, therefore, three reasons why.

First, as I have said, the price of petrol is going up anyway. Secondly, as the right hon. Member for Wells (Mr. Heathcoat-Amory) said, as a result Government revenues elsewhere are going up. They are going up from VAT on oil; they are going up increasingly from the petroleum revenue tax. I think it is estimated that £20 billion over the next four years will be gained from the PRT. Lastly, as the right hon. Gentleman also said, the Government are suffering a severe loss of revenue because of above-inflation increases in the price of diesel fuel and petrol here while there is cheaper fuel elsewhere.

In my constituency, the nearest to Northern Ireland, we are very conscious that cross-channel hauliers--I am speaking about the north channel between Galloway and Northern Ireland--very often do not fill up in Galloway or in Northern Ireland, but fill up in the Republic, in places such as Dundalk. That means money lost to the Exchequer, because basically we are trying to be too greedy. The mark-up on what would be the retail price of petrol without the duty is, I believe, 333 per cent., which is fairly good by anybody's standards.

It is not just ordinary people who are paying the tax. It is also heaped on to the police, the fire service, the ambulance service and school buses. Every time we

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increase the tax by more than the real rate of inflation, the costs of all those essential services go up at the same time. That is insupportable.

The Chancellor has made much of the fact that he has done away with the automatic fuel escalator. I do not see that there is any point in doing away with an automatic escalator if what we get instead is a manual escalator. We need a much more sensible approach to the issue. I urge the Government to think again before it is too late for many businesses in the rural economy, and perhaps before it is too late for their majority at the next election.

Mr. Jack: I support my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), who made a telling case for standardising indexation changes based on a retrospective look at the retail prices index. One feature that has not come out in the debate so far is the accuracy of the inflation forecast. If by chance inflation does not move ahead at the same rate as the forecast increase used for the various tax purposes that my right hon. Friend outlined, the Government have a windfall gain, but they do not give themselves an obligation to pay back to the taxpayer any of the extra money obtained through fortuitously lower inflation than forecast.

As has been said in the debate, the windfall gain in VAT receipts as a result of the rise in oil prices, with its knock-on effect on petrol prices, bears witness to the fact that the present Government enjoy using every opportunity to take the people's money and put it into the Treasury's coffers to do with it as they think fit. Therefore, in terms of safety and equity, my right hon. Friend is correct.

I should like to conclude by expressing a provocative thought. The whole question of uprating the Government's income is perhaps a disincentive to their making certain that they always make every pound of taxpayers' money work as hard as possible. The Government can simply say that they can guarantee that a certain amount of money will come in through uprating, but a company cannot assume that it will receive automatic price increases. A company will try extremely hard to make every penny work as hard as possible, because it cannot guarantee receipt of that extra income.

We have got ourselves into the way of thinking that the Government's position must always be protected. From the individual's point of view, I can well appreciate why indexation should continue to be a regular feature, because he or she has less room for manoeuvre; in the real world an individual may well not receive a pay increase, but he still has his taxes to pay. Therefore, some form of price index-insulated indexation is important to him if he is not to be worse off year on year in real terms. But the Government's automatic assumption that they will receive money through indexation perhaps makes them a bit sloppy around the edges when it comes to spending the public's money. That may be a feature that the House will return to when it debates today's statement by the Chancellor.

Mr. Timms: We have been over the ground covered by new clause 2 on a number of occasions. This is probably the third time that we have heard the speech of the right hon. Member for Wells (Mr. Heathcoat-Amory). I had hoped that he might have something different to say on this occasion, but I was disappointed. He made his points in the usual way.

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I should like to set out the position again. It is standard practice for inflation increases in excise duties to be based on a forecast of September retail prices index figures, and for income tax allowances and pensions to be based on the previous September's out-turn figure for the retail prices index.

Mr. Jack: The Financial Secretary used the expression "standard practice". Why must it be the standard practice? Why could the hon. Gentleman not change the standard practice to a more equitable practice if he wished?

Mr. Timms: Of course, the practice could be changed, but I want to explain what the practice is. September is the date that has been used on both sides, in excise and in allowances, with a forecast in the case of excise duties and a look back at the previous year's figures in the case of allowances.

Mr. Alasdair Morgan: If that practice is followed, and if--heaven forbid--Treasury forecasters are always pessimistic, we shall continue to have an increase each year that turns out to be higher than inflation, and gradually the average prices index and the duty levels will diverge.

Mr. Timms: I am glad to be able to reassure the hon. Gentleman on that point. The duty increases since the election have been less than they would have been if inflation had been used. The duties being paid by the hon. Gentleman's constituents are less than they would be if we were to take up his suggestion.

The Opposition have got excited about this matter on a number of occasions and have drawn attention to the fact that, this year, inflation increases for duties have been greater than for allowances and pensions. It is a matter of swings and roundabouts. Last year, the reverse was the case, and allowances and pensions went up by 3.2 per cent. while duties went up by 1.3 per cent. We heard nothing about stealth handouts in the debate at that time. In a era of stable inflation--the result of the extremely successful management of the economy that we have enjoyed over the past three years--things even out over time. As I have been able to point out, duties have increased by less than inflation over that period. All this fuss has been entirely misplaced.

Announcement of the personal allowance in November means that the latest practical reference point for income tax allowance indexation is September--the month preceding November would not work. It would be impractical--this is a suggestion in new clause 2--for the Budget to be early in the month. If the Budget were in early March, the new clause would require the duty increase to be the change in the RPI in the year to February, which would not even have been published by that time. It is an unworkable proposal.

Another difficulty with the proposal is that different indexation figures would be used for different allowances. Basic personal allowances would rise by the increase in RPI in the year to October, while the other allowances and the rate bands would rise in line with the RPI increase to February. That is just within the allowances. There is no sense in that.

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I should remind Conservative Members that it was their Government who introduced the Income and Corporation Taxes Act 1988, which requires the use of the September RPI for income tax as opposed to the much more arbitrary and less satisfactory proposition that they are advancing today.

I noticed that, in response to my intervention, the right hon. Member for Wells was understandably shy when it came to talking about what the previous Government did with income tax allowances. The previous Government froze income tax allowances for 1993 and 1994; they did not uprate them at all. They also froze the basic rate limit, not just for those two years, but for 1990 and 1992 as well. As a result, they raised taxes by over £2 billion. The measures to freeze allowances and the basic rate threshold with effect for April 1993 and April 1994 brought in about £1.75 billion. The Chief Secretary responsible for that was the current shadow Chancellor. The Opposition are a great deal more vulnerable on this than the Government. The proposal is unworkable.

The right hon. Member for Wells or it may have been his hon. Friends in Committee--said that the Red Book does not mention the figure of 3.4 per cent. It does. It appears several times in table A.9 on page 146 and the figure 3.41 per cent. appears in table A.12 on page 148. It is always worth reading the Red Book. It is a practice that I commend to Opposition Members.

I was rather surprised by the fact that the right hon. Gentleman said that he had been unable to establish the figure for revenue lost through cross-border shopping and smuggling of oil in Northern Ireland. We have said on a number of occasions that we estimate that to be £100 million in 1998. That has been published in parliamentary answers and it was stated in Committee. We have published that figure on a number of occasions, and I am sorry that the right hon. Gentleman missed it.

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