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Road Fuel Regulator

'In the Hydrocarbon Oil Duties Act 1979 (c. 5) section 6 (excise duty on hydrocarbon oil) there is inserted after subsection (1A)—

"(1B)   The Chancellor of the Exchequer shall publish a forecast based on the expected direction of international oil prices.

(1C)   When the average price per litre of a fuel listed in subsection (1A) above increases by more than 3 pence over any period of six months, the Chancellor of the Exchequer shall make regulations reducing the duty rate on that fuel and that reduction in fuel duty shall be based on the increase in the cost per litre accounted for by VAT.

(1D)   Whenever international oil prices rise above the level estimated by the forecast made in accordance with subsection (1B) above, indexed fuel duty increases shall be frozen until the international oil prices return to the forecast level.".'.—[Stewart Hosie.]

Brought up, and read the First time.

Stewart Hosie (Dundee, East) (SNP): I beg to move, That the clause be read a Second time.

We are seeking to amend the Hydrocarbon Oil Duties Act 1979 with the new clause, which, I am pleased to say, has the support of the Road Haulage Association as well as members of the Scottish National party, Plaid Cymru, the Democratic Unionist party, the Ulster Unionist party and the Social Democratic and Labour party. It is designed to deal with oil prices that are exceptionally high for various reasons and with exceptionally high pump prices for road fuel. It has no impact at all on expected revenue, because the mechanism would apply only when oil prices and revenues are above the Chancellor's forecast range or when the fuel price at the pump increases by more than 3p over a six-month period. As it applies only when fuel prices are abnormally high, it has no implications for the environmental benefits sought by the ongoing managed increase in duties.
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There is widespread recognition of the pain suffered by the road haulage industry. Bankruptcies in that sector are twice the average of other industry sectors. Hauliers' average running costs are 52p a mile—some right hon. and hon. Members will remember when petrol and diesel cost 52p a gallon. Competition from hauliers in Europe, driven by lower fuel prices elsewhere, have led to a massive reduction in the percentage share of cross-channel freight delivered and carried by UK hauliers. The industry and, indeed, domestic car users pay some of the highest fuel prices in Europe, driven by some of the highest taxes on fuel in Europe of 69 to 74 per cent.

That is bad enough, but the biggest problem is the inability of businesses in particular to plan properly while fuel prices rocket. Unlike spikes in the past, those prices have stayed high for a long period. Our proposals for a road fuel regulator in proposed subsection (1C) respond to prolonged increases in the price of fuel at the pumps. If there were a rise in petrol and diesel of 3p a litre or more in any six-month period—according to my calculations, there have been three occasions since 2000 when that has happened to four-star petrol—our proposal would take the edge off the increases and minimise the impact on businesses and consumers. To give a little background, the first prolonged spike above 3p a litre for a six-month period occurred between January and July 2000. The price remained high and, if our proposal were operating, the regulator would have remained in force until December 2000. When the second spike occurred between September 2002 and March 2003 the regulator would have remained in place for one month until April 2003. The final spike in four-star prices occurred between April and October 2004, and the regulator would remain in place until the present time. We propose that the Chancellor be required to reinvest the additional revenue that he receives from VAT on the higher pump price to lower the duty on fuel in such circumstances.

As an illustration, the Automobile Association has done its own calculation based on unleaded fuel. It estimates that some six months ago the average price of the fuel was 80p.

Mr. Walker: Does the hon. Gentleman accept that if we are to reduce greenhouse gas emissions, as we all want to do, fuel prices will have to increase over time, perhaps quite rapidly, and that tax is one way of achieving that increase to reduce usage?

Stewart Hosie: I thought I had covered that earlier. If we use duty or tax—a price mechanism—as a disincentive for car use, that is a managed increase. I am referring to the prolonged spiking—the unexpected increases for which businesses in particular cannot plan—over and above the normal increases in duty that may or may not be applied as an incentive to reduce vehicle use. I hope that helps.

As I said, the AA, using its own estimates on unleaded petrol, indicated that some six months ago the price of a litre was about 80p. This month it is about 86p. If our road fuel regulator were in place now, that would trigger a cut in fuel duty of 1.2p, which would be paid for by the increased take in VAT over the past six months. It would take away some of the pain—some of the spike—for consumers and road hauliers at no real cost to the Treasury, as the revenue that it gained was unexpected
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in the first instance. Such a move would have lowered pump prices from the near-record highs that we see today and moderated them at the level that existed around mid-April.

As the AA Motoring Trust pointed out, the price reduction would put just under £1 million a day back into the pockets of consumers, into the bottom line of businesses and presumably into the tills of the shops and other small businesses on which many of our communities depend and on which the Chancellor depends for his tax take.

I shall quote further from the AA. Because of the 6p increase that it estimates over the past six months,

that is, over and above anything that one would have expected. That is not good news for the small businesses in all our constituencies or for the Government, who rely on our collective spending power to keep their economy going.

The second element of the road fuel regulator would ensure that freezes on fuel duty are not left to the whim of the Chancellor, but are instead automatically triggered by world oil prices which are in excess of a forecast that we would have the Chancellor make in each Budget.

Helen Goodman: I am slightly puzzled by subsection (1B), which states:

That already happens. I have found six references to the oil price forecast in the financial statement and Budget report. It is one of the forecasts that is independently audited by the National Audit Office, and it reads directly through to the forecasts for North sea revenues and for hydrocarbon fuel duties, so I do not understand why the hon. Gentleman is proposing a new obligation to make a forecast.

Stewart Hosie: We consider it important that a ranged forecast be made in order to allow the trigger mechanism for the fuel price regulator to kick in, so we thought it was important—we spoke to the Clerks about this when we drafted the new clause—that that was laid down in the new clause because it was referred to specifically by a subsequent clause. I hope that helps the hon. Lady. I must move on.

The second element of the road tax regulator would ensure that freezes on fuel duty were not left to the Chancellor, but were triggered automatically. In his Budget this year the Chancellor announced an increase in fuel duty of 1.22p in September, equivalent by coincidence to the reduction that would have happened had the fuel tax regulator been in place. Although we are delighted that that has been frozen for the time being, it should not be at the whim of Government, but should be triggered automatically by high prices in the world oil market.

Hon. Members will remember the saga from last year when the Treasury repeatedly deferred its proposed duty rise from the 2004 Budget. Motorists and hauliers were given no certainty. The decision to freeze or not to freeze
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seemed to be based on nothing more than the Chancellor's moods, or perhaps his political sensitivity to too-high fuel price rises. The haulage industry would much prefer certainty and an automatic trigger to what has become known as the Chancellor's choice.

Under subsection (1D) of the new clause, if oil prices rose above the forecast levels by the Chancellor in his Budget report, there would be an automatic freeze in fuel duties. In today's circumstances, that would put some £20 million a month back into the pockets of constituents and local businesses, including haulage businesses, but would not affect the forecast revenue for the Government, as it would kick in only after the forecast was breached upwards.

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