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The Economic Secretary to the Treasury (John Healey): Amendments Nos. 16 and 17 would remove the duty increase for ultra-low sulphur diesel and petrol planned for September this year at a time when the international price of Brent crude oil is at or above $37.84 per barrel. For the benefit of the hon. Member for Chichester (Mr. Tyrie), today's Brent crude price is almost $2 lower, not $1 lower, than his level. At noon today, it was $35.97 a barrel.
 
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I have to tell the hon. Member for Christchurch (Mr. Chope) that this is not a modest amendment. On the contrary—[Interruption.]

Mr. Tyrie: I do not know what prices the Economic Secretary is using. It shows why we really need Bloomberg in the Library—I requested it, but it was turned down—to ensure that we have accurate and up-to-date market prices for debates. It would cost £5,000 a year, which I believe would be a good investment. I am glad to have been able to get that point on the record. I checked the prices at 11.45 am and unless something dramatic has happened, the Brent spot price is $36.7 a barrel and the forward price for August—when the Economic Secretary says he is going to conduct his review—is $37.1. That is less than a dollar away from the price stipulated in the amendment.

1.15 pm

John Healey: No doubt the House authorities will study closely the hon. Gentleman's remarks. On the apparent discrepancy, it may be something for Bloomberg to take up with Reuters. Those two market sources may have different figures.

My serious point is that the amendment is not modest, as the hon. Member for Christchurch claimed that it was. It is an extraordinary declaration of new policy from the shadow Chancellor and his team. I take it that Conservative Members will back it up by voting for the amendment this morning. They are seriously saying that, if the price of oil is above $37.84, they will not implement the usual inflation increase in fuel duty each year. The usual inflation increase simply ensures that fuel duty maintains its value and its contribution to the public purse. Let me tell the hon. Member for Chichester that that approach amounts to another hole in the Tory spending plans of at least £750 million a year and that many of his shadow colleagues who are responsible for sectors already facing deep cuts will not be best pleased with his arguments today.

Mr. Tyrie: The Economic Secretary knows that that will not wash. He knows perfectly well that the amendment will not take effect until the next Budget—six months away. He also knows that, as the hon. Member for Banff and Buchan (Mr. Salmond) said, though I did not agree with all his points and I am not sure that he fully understood some of mine, that the net effect of the increase—

Mr. Speaker: Order. The hon. Gentleman will have a chance to reply and he is supposed to be making an intervention, which should be very brief and also about petrol duty.

Mr. Tyrie: The hon. Member for Banff and Buchan correctly said that the overall revenue effects of changes in oil prices over the last few months are highly favourable to the Government, who will benefit by a ratio of at least 2:1 and possibly 3:1 on my calculations. That is the ratio of increased revenue for every pound lost under the amendment.

John Healey: Clearly this is a six-month measure, not a serious one. It is simply a short-term reaction to complex current events and not a sensible way to make
 
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policy. The Tory plans mean that when the daily oil price goes up, the inflation increase is withdrawn. Presumably, when the oil price goes down, the duty increase will be reintroduced—though we are not told that. It is a hopeless hokey-cokey provision. I must tell the hon. Member for Chichester that it is not possible to manage economic policy and the public finances on such a simplistic and unstable basis.

Mr. Salmond: It may well be a hokey-cokey amendment, but its weakness is not that it is too bold, but that it is far too modest. Will the Treasury Front Benchers address themselves to the question of how much additional revenue they now expect, given that international oil prices are way beyond the Budget assumptions? What do they intend to do about the windfall revenue in the light of the September rise?

John Healey: If the hon. Gentleman can be patient, I intend to come on to the points that he and the hon. Member for Angus (Mr. Weir) have raised.

We are conducting a serious debate on the amendment before the House and it is important to realise that there is no historical precedent for such an approach when the Conservatives were in government. There has, of course, been a precedent for higher oil prices. However, unlike during the periods when oil prices were high under the Conservative Government, the UK economy now has the strength and stability to withstand some of these difficulties.

In late 1980, for example, when oil prices reached $40 a barrel, inflation was above 15 per cent., interest rates 14 per cent., and gross domestic product had contracted by 4 per cent. over the year. In 1990, when oil prices reached $40 a barrel, UK inflation was almost 11 per cent., interest rates 14 per cent., and the British economy had once again entered recession. Today, as a result of Labour's management of the economy, the UK enjoys the longest continuous growth on record, the lowest sustained inflation for 40 years and unemployment at its lowest level in a generation.

Turning to the points raised by the hon. Member for Banff and Buchan, if he consults the Red Book and my right hon. Friend the Chancellor's Budget statement, he will see that the delay in the usual increase in inflation is designed to coincide with the differential that we determined to introduce on 1 September to encourage the switch to sulphur-free road fuels.

The hon. Gentleman asked about revenue projections. He has been in this House a long time—a very long time, in some people's books—and will know that such projections are updated and published at the time of every pre-Budget report and Budget. We do not do those calculations or publish the projections on a day-to-day basis.

Based on assumptions audited by the National Audit Office and published at the time of the Budget, the crude oil price from which the 2004 figures were derived was 27.40p a barrel. The hon. Members for Banff and Buchan and for Twickenham (Dr. Cable) both talked about a windfall for the British economy resulting from the rise in oil prices. While it is true that North sea revenues increase as the oil price rises, the broader effect on public finances is much more complex.
 
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Mr. Salmond: I think that the Economic Secretary meant to say that the oil price was $27.40 a barrel. However, it was suggested that the matter was under review. If so, that review must include the Treasury's new expectations of what would be a reasonable assumption for corporation tax and other oil receipts for this year. With respect to the Economic Secretary, I maintain that any responsible Treasury must do those calculations if an assessment has to be made soon about whether to go ahead with the duty increase. So where are they?

John Healey: The review by my right hon. Friend the Chancellor, and the decision that he takes, will take into account all the economic, social and environmental factors in such a complex decision. North sea revenues may rise with the oil price, but the broader effect on the public finances is much more complex. The overall effect in respect of the economy, business profitability and Government expenditure is broadly neutral.

Mr. Chope: On 3 June, a few days before the European and local government elections, the Chancellor of the Exchequer led us to believe that he was thinking seriously about not increasing fuel duty this autumn. Was he speaking through his hat?

John Healey: My right hon. Friend was not speaking through his hat. In fact, I do not think that I have ever seen him wearing one.

The hon. Member for Angus (Mr. Weir) described vividly the journeys that he can and cannot make across his constituency. I was almost there with him, but derogations for road fuel duty based on regions are, basically, prevented by European law. To get them, we would need the agreement of all 25 EU member states. That is not a viable policy proposition.

The amendments are flawed in both principle and practice. They do not recognise that, if duty on ultra-low sulphur diesel and petrol were reduced because of increases in the Brent price, the duty on sulphur-free diesel and petrol would be higher than that on the ultra-low sulphur fuels. That would wreck our aim to introduce those fuels at the earliest possible point and our plans to get the environmental benefits that would follow.

The amendments adopt the wrong approach. The right approach is the one pursued by the Chancellor. It has not been set out in private briefings, but placed on the public record by the Chancellor and the Prime Minister. The problem that we face is the world oil price, not UK duty rates. Therefore, it is right that we concentrate on oil supplies and on ensuring that OPEC meets its targets for sustainable prices.

The Chancellor has been at the forefront of those discussions. He and other Finance Ministers will continue to press OPEC to meet the increased production targets that have been set and to argue that we should go further still.

We have said that we will review progress in reducing oil prices and that we will make a judgment on the planned duty change due on 1 September. I urge the House to reject the amendments.

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