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John Healey: The hon. Lady has only just joined our debate on new clause 7. Leaders such as Roger King and Richard Tuner of the Freight Transport Association have taken a constructive approach. Although they have been critical at times, they have supported the principle behind the approach that we are taking and will continue to take. However, it is a tribute to the two of them that all the members of their associations have not always taken the same view.

Adam Price: The Financial Secretary says that those people have taken a constructive approach, but Richard Turner, the chief executive of the FTA, was quoted this
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morning as saying that the Government's decision was reprehensible and broke faith with what the industry had been told over the past five years.

John Healey: We announced yesterday that we remain convinced that a distance-based charge is the right way ahead, but it makes no sense to develop a system only for lorries when it is clear that the debate on national road pricing has moved on significantly since the last election. We thus announced that we would incorporate work on a lorry road user charge in our work on a national road pricing system.

The hon. Member for Rayleigh reminded the House that I announced yesterday that the Government will not go ahead with the planned inflation-only increase of 1.22 p per litre on road fuel duty on 1 September, which will also apply to duties on rebated oils, biofuels and road fuel gases. We will review the position again at the time of the pre-Budget report. I welcome the fact that he described the decision as fair, although that did not seem to be the view of all his colleagues. The hon. Member for Broxbourne (Mr. Walker) advocated higher fuel duty and prices to discourage demand and reduce emissions from road traffic, which was his concern.

While we are on hon. Members' views on taxation, I tell the hon. Member for Braintree (Mr. Newmark) that the Sustainable Development Commission has a valuable role of advising the Government. However, just so he is clear, I should point out that it is the Chancellor, not the commission, who makes policy and decisions on tax.

Mr. Walker: I would hate the Minister and my constituents to think that I advocate higher taxes. I suggested that there were two sides to every argument. I know that the Scottish National party is keen to reduce greenhouse gas emissions, and I said that that was not consistent with its desire to cap the taxation on fuel.

John Healey: No doubt the hon. Gentleman's hon. Friends and his constituents will read the Official Report tomorrow and see what he said earlier.

The decision that I announced yesterday was not based on the Chancellor's whim, as the hon. Member for Dundee, East suggested. Following sustained pressure from G8 Finance Ministers, OPEC is committed to increasing quotas by up to 1 million barrels a day by September. In the short term, however, uncertainty and the risk of price volatility remain high, especially so with oil trading last week at above $59 a barrel. By the time of the pre-Budget report, it is likely that there will be more clarity about OPEC and non-OPEC supply, levels of global demand for oil and the level of crude and product stocks ahead of the peak winter demand. I hope that hon. Members on both sides of the House accept that it is in no one's interests to have fuel prices higher than expected or higher than they need to be.

The best way to deal with high international prices is not by imposing complex mechanisms that respond to what may prove to be temporary fluctuations in prices, but through the efforts that we are making to support producing and consuming nations to promote greater market transparency and to improve the investment
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climate in the international oil sector, which will help to bring about more stable oil prices at levels that are more conducive to sustainable economic growth.

Mr. Salmond: Has the Treasury examined the idea of having a regulator or governor as part of the process of smoothing out the fluctuations?

John Healey: We have, not least because the Scottish National party tried to table similar amendments to other Finance Bills. When such amendments are proposed, we consider the policy proposals and make our analysis of those.

The hon. Member for Eastleigh (Chris Huhne) mentioned sustainable economic growth. He said that, from an intellectual perspective, he was sympathetic to the approach in the new clause and was interested in the proposal, in the interests of greater economic stability, if it helped to smooth oil prices. We both got the clear answer to that when the hon. Member for Banff and Buchan (Mr. Salmond) said that it is a "one-way clause." My assessment of it is the same as that of the hon. Member for Eastleigh, in that it would not have that smoothing and stabilising effect.

If the new clause were accepted, it would introduce mechanisms that could lead to duty reductions when pump prices rose significantly in a six-month period and it would freeze duty increases when international oil markets were high. The effect of the pump price-related proposed new subsection (1C) on the price that the average motorist pays for a litre of fuel would be small. If the price of petrol rose at the pumps from 85p a litre to 88p a litre—a rise of 3p—the new clause would reduce the duty rate for petrol by just 0.525p a litre, not, as the hon. Member for Dundee, East argued, by a value roughly equivalent to the freeze that I announced of 1.22p a litre. Yesterday's announcement to postpone further the planned inflation increase in the fuel duty rate would do more now, which the hon. Member for Angus (Mr. Weir) advocated, than the new clause.

The mechanism is unnecessarily complex. It would do nothing to bring stability to the market in the UK. Indeed, it is unlikely that consumers would see all the benefit—modest though it is—of its operation. Despite being the Minister, and not an Opposition spokesman, I shall not dwell on the technical deficiencies of the drafting of the provision.

5.30 pm

A second mechanism, whereby higher international oil market prices would trigger a freeze in duty increases, would result in expensive changes to road fuel duty and VAT systems both for people who have to account for the tax that they are due to pay and for the Government trying to collect it. The burden is likely to be heaviest for people who are minor oil users and dealers. Finally, the new clause is based on the misconception that high fuel prices lead to higher overall VAT receipts. That is not necessarily the case. If people have to spend more on one commodity they tend to spend less on others, and the overall level of VAT receipts usually remains relatively unchanged. The hon. Member for Dundee, East may be interested in the latest assessment by our analysts, who estimate that a 5p a litre increase in pump prices will result in higher VAT receipts of about £290 million in
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the current year. The resulting reduction in demand, however, will lead to lower duty revenue of about £500 million. High oil prices—I have debated this point with the hon. Member for Banff and Buchan a number of times—have a complex impact on public finances, economic activity and Government expenditure commitments. Windfall gains do not, as he claims, necessarily come to the Treasury as a result of rising oil prices.

Mr. Salmond: As I have told the Financial Secretary before, if the Treasury truly believed that argument, it would reduce duty to increase the VAT take. Are those the same Treasury analysts who forecast oil revenues this year of £6 billion, and is he confident that that is an accurate forecast?

John Healey: There has been slight confusion in the debate. Earlier, Members were discussing forecasts of the oil price. The Government publish an assumption about the oil price in the Budget and in the pre-Budget report. In the Budget, it was $40.6 a barrel. That assumption is based on the average of the independent forecasts—it is not our forecast. We publish it, because we need an assumption for the purposes of public finance planning. The hon. Gentleman must wait until the pre-Budget report. He has been in the House long enough to know that we make our revenue forecasts twice a year in the Budget and in the pre-Budget report.

In claiming that the new clause will bring benefits for business, the hon. Member for Dundee, East may have overlooked the fact that many businesses, particularly the 1.8 million VAT-registered businesses, can reclaim the VAT incurred when they buy fuel for business journeys. The level of VAT that they pay at the pumps has little or no effect on their overall balance sheet. For those reasons, we believe that the best way of dealing with high oil prices is to work with oil-producing countries and through the G8 Finance Ministers to stabilise the volatility in the oil market and to improve its functioning rather than simply focus on short-term changes to levels of duty by introducing a road fuel regulator, as proposed in the new clause.

I hope that the hon. Gentleman accepts that we have had a useful debate and, on that basis, does not believe that he has to press his new clause to a vote. If he does so, however, I will urge my hon. Friends to resist it.

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