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Chris Huhne: The hon. Gentleman knows well that the debate last year arose from a general proposal from the Scottish National party to reduce fuel duty for
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the entire United Kingdom. That was not something that we could conceivably support if we held any responsible attitude towards the burning of fossil fuels and the impact on climate change.

Stewart Hosie: I say to the hon. Gentleman with a straight face that the proposals from his party today will not stop the burning of fossil fuels. The cost of doing so would be reduced in rural areas, for very good reason.

Chris Huhne: The key point, which my hon. Friend the Member for Falmouth and Camborne (Julia Goldsworthy) made explicitly, is that the proposal is designed to be part of a package that will, taken in its whole, have a dramatic effect in providing a disincentive to the burning of fossil fuels, and therefore improving our contribution to tackling climate change. If we do not deal with the problems in rural areas, there will be a serious difficulty in using price incentives through fuel duty and through vehicle excise duty to tackle climate change. It is precisely to enable that process to go forward that we have put forward the proposals that are before the House. It is unfortunate, given the arcane rules of the House, that we are not able fully to debate the other parts of the package. However, as we know from—

Mr. Deputy Speaker: Order. I think that the hon. Gentleman should stop at that point.

Stewart Hosie: If the hon. Member for Eastleigh (Chris Huhne) chooses to get to his feet later, we know what his speech will be about.

The hon. Member for Orkney and Shetland (Mr. Carmichael), whom I like and admire, mentioned VAT on three or four occasions during his contribution on new clause 4. It is disappointing that new clause 4 does not use VAT gain to offset duty, which is my proposal. That is a sensible way around the problem, not least because a VAT windfall would not have a fiscal impact on the Treasury—it would minimise the gain, while not reducing the Government’s expected take.

New clauses 4 and 6 would allow the Treasury to define “sparsely populated rural areas”. The hon. Member for Fareham (Mr. Hoban) and I have referred to the various definitions, such as the sevenfold model, which can cover up to 90 per cent. of the population and up to 30 per cent. of the land mass. Those definitions are clearly inappropriate, and those outcomes are clearly not what the Liberal Democrats intended. If an offset or a straight reduction in fuel duty were to apply to sparsely populated rural areas, the Treasury should define it in statute.

There has been a great deal of discussion about derogation, which the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) has mentioned. We will not vote on new clause 4 tonight, which is disappointing because it may provide a way forward, and I hope that we can build a consensus on the issue.

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New clause 6 addresses the ongoing problems caused by high fuel prices. Last year, a similar amendment attracted cross-party support and the support of the Road Haulage Association, and I am delighted to tell the Financial Secretary that the RHA welcomes new clause 6 today—if I hold up the RHA press release to the right camera, someone will take a picture of it. The press release states:

John Healey: The hon. Gentleman may be interested to know that yesterday I met the RHA, the Freight Transport Association and Mr. Robbie Burns, not one of whom mentioned the SNP proposals.

Stewart Hosie: Perhaps they were overawed by the Financial Secretary. Roger King certainly welcomed our proposals today, and I would be delighted to forward the Financial Secretary a copy of the RHA’s press release.

The proposal would result in the introduction of a mechanism so that high oil prices would trigger lower fuel duty—fuel duties and VAT make up about 60 per cent. of the total price of a litre of petrol or diesel. In that case, the Chancellor would provide by statutory instrument that where the price of crude oil rose above the published forecast price, additional revenue from VAT on fuel would be applied to offset some of the rise in duty.

It will come as no surprise that the hon. Members who backed similar amendments last year represented rural and semi-rural constituencies, but it is not only those in rural constituencies in Scotland, Wales, Northern Ireland and parts of England who suffer from high petrol and diesel prices. No nation, no region and no part of the UK is exempt from the problem of rising fuel prices, because every product in every shop is carried on the road by a haulier at some point.

There has been a lot of banter in the Chamber about some of the proposals. I do not intend to make a lengthy speech, because it would be unfair on those hon. Members who have stayed in the Chamber and because the arguments have been rehearsed on many occasions. I hope that the Financial Secretary begins to take on board the serious manner in which we are tackling the grave concerns of the road haulage industry and especially the serious problems in sparsely populated rural areas. In some rural areas in my constituency, there are no filling stations between major towns and the nearest city. As one moves into the countryside, more and more independent stations find that they simply cannot continue.

9 pm

I am unlikely to push new clause 6 to a vote. The parliamentary arithmetic would make that an unprofitable exercise. As I have done previously, I ask the Financial Secretary to take on board from the Road Haulage Association and the industry generally—the big companies and the small traders—
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the pain that has been suffered, the inflationary pressure building underneath because of high costs being driven up by haulage, and the problems of remote and rural Scotland and all sparsely populated rural areas in the UK. I ask him to make some positive noises in response to the debate so that we can look forward to a tempering of the high and spiking prices, which many of us experience in our constituencies.

John Thurso: I shall shortly consider cost and I hope to be able to provide some detail to hon. Members who have asked questions. I say that now so that they do not try to intervene before I reach that point in my remarks.

First, I shall comment briefly on new clause 6, about which the hon. Member for Dundee, East (Stewart Hosie) spoke. When I first read it, I had some sympathy with it but I soon decided that it was superficial sympathy. There are two fundamental problems with new clause 6 and the answer that he tried to provide.

First, the major disadvantage that my constituents and those of some of my hon. Friends suffer is the huge differential in price for diesel and petrol, which can range, depending on the cycle, from 6p or 7p at its most benign through an average of approximately 9p in the five years that I have been tracking the price to close to 14p in May 2003, which was the worst example. The problem is, as the hon. Member for Dundee, East admitted when I intervened on him in Committee, that his proposed system locks in the inequality. The price nationally would be held but the inequality would remain.

Stewart Hosie: It is true that the amendment that I tabled in Committee contained no specific proposal to alleviate rural prices. However, I specifically took on board the hon. Gentleman’s comments in proposed new section (1AB)(b) to the Hydrocarbon Oil Duties Act 1979 in new clause 6. That new paragraph refers to

I therefore hope that he will reconsider his previous sentence.

John Thurso: I am grateful for the intervention but it does not answer the question.

The second problem, which is fundamental, is that, if new clause 6 were accepted, the price of oil would be capped and there would be no opportunity to try to amend behaviour, as my colleagues wish, through taxes that give an incentive to those who have the opportunity to use alternatives in the form of public transport.

Stewart Hosie: Members of another party made that point in a previous debate. The point of using the windfall VAT to offset some of the duty rise is precisely that it does not impact on planned environmental increases. With the greatest respect, the hon. Gentleman has missed that point, too.

John Thurso: I am grateful to the hon. Gentleman for that explanation, but that is not how I read his clause, and I do not think that that is the effect that most observers and commentators envisage. However, I started by having some sympathy for his proposal, and
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he and I clearly share a desire to do the right thing. I suggest that his objective of getting rid of the inequality suffered by our constituents who live in remote areas would best be achieved by supporting new clause 4.

The problem is that we have become trapped by the wrong details and we are asking the wrong questions. The best approach would be to start by identifying the objective of the exercise. That objective is not to try to find a definition that fits; it is to identify the relatively small number of parts of the United Kingdom in which fuel is at such a premium that residents suffer great inequity. Let us look at that problem and design a scheme that addresses only that problem. All our discussions about whether to adopt formula X, Y or Z are irrelevant. New clause 4 would permit the Treasury to undertake the necessary work to address the problem. A number of schemes might fit the purpose, but the starting point should be to ask what we are seeking to achieve, and then to design the appropriate scheme.

I now want to address the question of cost. In January 2000, the Highland Council and Highlands and Islands Enterprise commissioned EKOS Ltd to produce a report on the scale of the problem. It stated:

If we wished to get rid of the premium—at an average of 9p—we could simply apply the 9p to those figures, and the cost to the highlands and islands would be no more than £3.5 million, allowing for inflation since 2000. That is a long way short of the £2 billion or £3 billion that has been suggested. In seeking to achieve our objective in the highlands, the Treasury would therefore have to bear the phenomenal cost of only about £3.5 million. If I extrapolate that calculation across similar areas using similar definitions, I estimate that the total cost for the United Kingdom would be no more than £20 million. But even if I am out by 100 per cent., and the total would be nearer to £40 million, that would still be a very small sum to achieve that objective. Furthermore, if the expenditure of £17.8 million that I have just described were diverted into general expenditure, we could create 592 full-time equivalent jobs in the highlands.

Another part of the equation that we need to consider is to be found in that same helpful report. It estimates that the average income in the highland area is much lower than in the rest of Scotland, and that prices are higher. Consequently, highland residents have 76p to spend on goods and services for every £1 that the average Scottish resident has. In other words, the average highland resident is about 24 per cent. worse off than those who live in the rest of Scotland. On top of that, they have to pay between 10 and 20 per cent. more for their fuel. That is the genuine burden under which my constituents and those of my hon. Friends labour. Hon. Members may not have visited the areas to which I am referring. I extend an open invitation to all of them to do so at any time. I can do that, because my constituency is so far away
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that I know very few will take advantage of the invitation. Nevertheless, they will all be welcome.

For many miles in those parts of my constituency there is no public transport of any kind. Where there is transport, it consists of a bus that travels in one direction on one day and travels back on the following day. That is not really a viable option. A car, or a private vehicle of some sort, is therefore an absolute necessity, particularly in much of rural Sutherland but also in many parts of Caithness. A real burden—real inequity—is suffered by people with the lowest incomes in the United Kingdom, and I think that reducing that burden is a worthwhile objective for us as legislators.

I commend new clause 4. It does not seek to impose regulation; it merely seeks to give the Treasury power to do so. When I last raised the issue, during a Westminster Hall debate in 2003, I argued for a derogation. That was because I had always been told by the Treasury that it could not take this action. The Treasury’s case was holed below the waterline when the French went and did it with the acquiescence and support of our Ministers. We need no longer ask “Can we do this or not?” We now know that we can, and the question has become “Why do the Government not do it?”

I am delighted to support the new clause. It gives the Treasury exactly the powers to deliver exactly the right solution at a very small cost to the taxpayer.

Mr. Alan Reid (Argyll and Bute) (LD): New clause 4 is an enabling clause, which gives the Treasury power to specify lower rates of duty on fuel sold in remote rural areas. Accepting the new clause would allow discussions to begin; we could then decide exactly where lines should be drawn, and what the differentials should be. I urge the House to accept the new clause. It does not commit the Government to anything and it would not reduce the Treasury’s revenue, but it would allow a debate to start.

The sad fact is that fuel is sold in remote rural areas at a much higher price than in urban areas. People living in areas where there is no public transport alternative must pay far more for their fuel than those living in areas where there is such an alternative. Let me give some examples from my constituency to show how large the differentials can be. The difference between the cost of fuel on the islands of Mull and Islay and in, say, Glasgow is usually between 15p and 20p per litre. In the case of smaller islands such as Coll and Colonsay, the difference is about 30p per litre. That demonstrates the massive extra amount that people living on the islands must pay for their fuel. The additional cost has a damaging effect on the economies of those islands: not only does it have an impact on people’s daily lives, but it discourages people from starting or continuing to run businesses.

The remote communities in the highlands and islands have suffered years of population decline, which shows no sign of stopping. The high fuel prices are part of the problem: as I have said, they discourage people from opening and running businesses that create the jobs that will allow young people to remain in those remote communities. Encouraging people to stay in the
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remoter parts of Britain benefits the whole country. Every time the Government propose the building of tens of thousands of new houses in the south-east, Members of Parliament from that part of the country object. They should ask why market forces are pushing people towards it. The answer is that the cost of living in remote areas is becoming so great that the jobs are not there. Sustaining viable economic communities in remote parts of the country is beneficial to the country as a whole.

There is an environmental justification for high fuel taxes: that they encourage people to use public transport alternatives. That environmental justification, however, does not exist in remote areas where there are no buses, and where it would be environmentally nonsensical for councils to subsidise bus services because buses would run with only one passenger on board. There is simply no environmental argument in favour of high fuel taxes in rural areas.

Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): It would be helpful if the hon. Gentleman clarified which communities would benefit from his proposal. The definition appears to be based on there being no public transport. The area around Inverness, for example, has a good public bus service extending a good few miles around the town, so it would not be an obvious beneficiary.

9.15 pm

Mr. Reid: Clearly, Inverness would not be a beneficiary. When my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) made the proposal, he was talking about Nairn, Badenoch and Strathspey rather than about Inverness.

Road pricing is, I believe, the long-term solution to the problem. We can fix charges for using roads in different parts of the country. For example, my constituents on the Isle of Mull have justifiable cause for complaint when they pay the same tax on fuel and pay more tax to the Treasury because of the higher rate of VAT. They pay more tax in order to drive on potholed single-track roads. It is scandalous that they have to pay more to travel on those roads than others pay to travel on well maintained motorways. Although road pricing is the long-term solution, new clause 4 provides the answer during the interim period before road pricing is introduced.

The Office of Fair Trading and other organisations, councils, enterprise companies and so forth have carried out investigations to find out why fuel prices are so high in remote areas. The general reason that always emerges is low turnover. It is argued that Tesco and Asda sometimes sell fuel at a loss in order to encourage people into their supermarkets to buy bars of chocolate and milk at inflated prices, but a small shop or filling station in a remote village or on an island does not have that option. There is a low turnover, but the fixed costs are the same, so the high prices result from that. The only way of bringing prices down is by reducing the element of taxation, which explains why we are proposing new clause 4 today.

As we have heard from other Members, EU countries such as Greece, Portugal and France have
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introduced a similar measure and have obviously found a way of making it work. I see absolutely no reason why it cannot be made to work in Britain as well. If we accepted the new clause, it would allow the Treasury to do some analysis and some arithmetic, to publish consultation documents and to provide impact analysis, which would allow us to decide exactly where the lines on the map should be drawn. I would certainly include all the Scottish islands.

Mr. Andrew Turner: Before the hon. Gentleman sits down, I would like to say that it would have been much better if the Liberal Democrat speeches had been delivered in reverse order— [Interruption.] Well, we would have been so much better informed at an earlier stage of the debate. Does the hon. Gentleman agree that many island residents find it difficult to justify paying national rates of vehicle excise duty when their cars never go on to the mainland?

Mr. Reid: The hon. Gentleman makes a very good point. Islanders have to pay vehicle excise duty, fuel tax and VAT. Indeed, if my constituents want to take their cars to the mainland, they have to pay a high fare to Caledonian MacBrayne, so the hon. Gentleman has made a valid point.

To sum up, I urge the Government to accept new clause 4, which would allow studies and further analysis to be carried out. The Government could later table the orders on which we could vote, allowing the burden of fuel duty on remote and island communities to be lowered. I would certainly include all the Scottish islands in the definition of a remote area. More detailed study has to be done in order to establish exactly where to draw the line on the mainland. Urgent action is required. We have had centuries of population decline, and unless drastic steps are taken I am afraid that that will continue.

Mr. Newmark: I was not expecting to speak in this debate, but I was once again inspired by the hon. Member for Wolverhampton, South-West (Rob Marris). I put it on record that I have tremendous sympathy for people who live in rural areas. In fact, I live in a semi-rural constituency. Many of my constituents, and especially those in the more rural areas, are feeling the effects of high energy costs. However, I have a problem with how rural areas are defined, as opposed to urban areas. The hon. Gentleman asked why poor people in rural areas should benefit more than poor people in urban areas.

Mr. Alan Reid rose—

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