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Mr. Alex Salmond (Banff and Buchan) (SNP):
I am rather sympathetic to the idea of trying to establish a link between the world oil price and uncertainty within it, and the tax position in relation to fuel; but I am not convinced that the amendment is the best way of doing that. In what purports to be a substantive amendment, the proposal that, on the basis of the date of a supposed spin or leak from the Chancellor or the Prime Minister,
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a device should kick in in response to a set international price of oil strikes me as rather on the light side. Front Benchers nod. Indeed, like crude oil, the amendment is extremely light.
I do not think that the argument behind the amendment has been advanced very powerfully, so I shall take the opportunity to advance it now. In fact, the argument in favour of such a link emanates from the Chancellor himself. As I recall, he delayed the duty increase until September as a result of instability in world oil markets. Presumably he is now considering carefully whether they are stable or unstable; any such consideration is, I think, likely to result in the conclusion that they are unstable, and subject to a variety of events. The Government's intervention in Iraq seems to have made things no better in that regard. According to the Chancellor's own logic, there is clearly a case for a review or assessment of the fuel increase that was due in September.
Another option would be to base the world oil price not on the date of leaks from the Government, but on the forecast in the Red Book, which, if I remember correctly, was $27.5 a barrel. The price has clearly exceeded that for some time. As the projection in the Red Book has been overtaken by events, I hope that Ministers will give us the latest projection for corporation tax and North sea revenues for the current financial year.
Mr. Tyrie: I am perplexed by the figure of $27.5. I should be grateful for sight of the SNP's heavier amendment; I should also like to know which marker crude the hon. Gentleman is referring to.
Mr. Salmond: I am speaking from memory, but I thought that $27.5 for Brent crude was the assumed price underlying the Treasury projection of oil revenues amounting to £3.6 billion in this financial year. Conservative Front Benchers shake their heads. I hope that Ministers can clarify the matter, but my recollection is that $27.5 was the underlying price assumption at the time of the Budget. Now Conservative Front Benchers are agreeing with me. That is terrific: I have managed to swing them round.
I am not talking about the price itself. I am talking about the price assumed by the Treasury for the coming year, on the basis of which it projected the corporation tax from oil and gas revenues. Is that now established in Conservative Members' minds? Surely that price is the key, because on the basis of that price the Government assumed that there would be £3.6 billion of corporation tax revenues from North sea oil. The take will clearly be substantially higher. We may argue about whether it will be £500 million higher, £1 billion higher or even more, but it will be substantially higher almost regardless of any foreseeable change in the price for the rest of the year. Most of this year's corporation tax has already been set on the basis of current and past oil prices.
The Government ought now to be able to judge whether that additional windfall justifies a move to stop the increase in duty this September. Given the Chancellor's own argument that he delayed the increases in order to judge the extent of instability in the
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world markets; given the acknowledged instability and high prices that prevailed; and given that the Government are due for a windfall over and above Treasury expectations at the time of this year's Budget, they should now be in a position to come up with not a leak, suggestion or assumption, but a firm assessment and some sort of decision. With respect to Conservative Front Benchers, I feel that that is a better benchmark than the prevailing price of Brent crude on a day when the newspapers suggested that the Chancellor was trying to leak the fact that he was about to do something.
The Government have implicitly acknowledged that there should be some relationship between the prevailing level of duty and the world oil price. If that were not the case, the Chancellor would not have postponed his announcement until September. The Government should now be able to estimate the amount of the expected windfall, and should be able to give the information to us and our hard-pressed constituents—especially in Scotland, which suffers the double whammy of receiving no benefit from the additional oil and gas revenues flowing from our sector of the North sea, and being the part of the UK most exposed to rising fuel costs affecting not just consumers but industry and the retail and distribution chain.
On behalf of the people of Scotland and of Members of Parliament, let me ask Ministers whether they are in a position to tell us that they will negate this year's planned rise in fuel duty.
Dr. Vincent Cable (Twickenham) (LD): The amendment is useful if it helps to persuade the Minister to clarify his intentions. I rather agree with the hon. Member for Banff and Buchan (Mr. Salmond) that this is not the most helpful way of framing legislative change, but the exercise itself has been useful.
We should not, however, lose sight of the fundamentals. Putting aside the question of an oil price spike and how the Government might respond to it, I think it eminently sensible for the Government to introduce the basic principle of a duty price increase. In normal circumstances that would have been unexceptionable, and I doubt that we would have been dealing with amendments like this had there not been an oil price spike.
It is worth reiterating the underlying reasons. The cost of motoring has fallen considerably below the cost of using other modes of transport, as the Government's own transport advisers have been pointing out since 1997. The cost of motoring—admittedly, that includes vehicles as well as fuels—has fallen by about 5 per cent. in real terms, while the cost of bus travel has risen by 8 per cent. and household incomes by about 20 per cent. During the much longer period since the first oil shock about 30 years ago, the cost of motoring has fallen in real terms while the cost of public transport has risen by between 70 and 80 per cent., depending on the mode of transport involved. The system of price incentives is heavily skewed against public transport.
The proposed arrangement for duty increases makes perfect sense in terms of both transport and environmental policy, and I do not criticise it on those grounds. There is, however, a problem over how that is handled in the event of sudden oil price shocks. There are a couple of reasons why the Government must
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respond in such circumstances. First, as the hon. Member for Banff and Buchan pointed out, at such times the Government enjoy a windfall, partly from a rise in VAT in proportion to the price and partly from the taxation of the upstream. I think the sense of injustice at the revenue windfall enjoyed by the Government, which prompted the original oil price protests, led to a cross-party consensus that we must move away from the escalator.
The other problem at times of high oil prices is that they feed directly into inflation. If inflation goes up, even on a once-and-for-all basis, interest rates rise with all the attendant consequences for the British economy. So when the oil price shock occurred a few weeks ago, I took the view that the Government would be wise to announce a postponement of the duty increase, were such conditions likely to continue. I still take the view that that is the right policy.
1 pm
The international oil market conditions suggest that we may well experience a much worse shock in the coming weeks; indeed, that is entirely plausible. As of today, prices are back above $40, and the basic conditions are very serious. There is hardly any spare capacity in the system. Saudi Arabia—a country that is potentially highly unstable and vulnerable to sabotage in various ways—has a spare capacity of some 1 million barrels a day. The situation is quite different from that which pertained 10 years ago. As a result of the war, Iraq's own production has fallen rather than risen since the days of Saddam Hussein, and the conditions for increasing it are not promising.
So the world oil economy is poised on a very difficult knife edge. Demand is rising and there is very little spare capacity. It is easy to see how prices could simply go through the roof in such circumstances. If that happens, it is obviously right that the Government withdraw the tax increase until the market stabilises. I am not arguing for a cancellation—that would be irresponsible—but that the increase should be postponed until conditions are more stable.
It would be useful if the Minister explained a little more precisely what the Chancellor of the Exchequer actually meant by a postponement. What would be the conditions under which a postponement would take place, and when will he announce it? If the amendment succeeds in getting a little clarity in that regard, it will have been worth tabling. That said, in the light of the way in which it is phrased, my colleagues and I would not want to vote for it.
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