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9 July 2008 : Column 1450

The hon. Member for Upper Bann (David Simpson) then intervened to say that the same, if not worse, increases were going to happen in the autumn. In the circumstances, the Government should look further into those revenues with an eye to redirecting any windfall VAT benefits on domestic energy bills towards adopting measures aimed at improving energy efficiency or curbing fuel poverty for those domestic consumers. We need to target and keep our eye on that issue in circumstances where it is very easy to get distracted and preoccupied with a variety of other issues. We need to keep an eye on the Government’s successful drive on fuel poverty. It would be consistent with the Government’s approach if Ministers were to refocus their case on the general argument for windfall taxes in order to deal with that particular issue.

I intervened on the Minister earlier about the difficulties faced by the construction and property sector in the current crisis. In a constituency and region such as mine, that is not only a problem for businesses. Yes, construction and property is a very significant sector in Northern Ireland—indeed, it has been a very significant driver of the regional economy recently, just as it was a hugely significant driver in the economic success of the Irish Republic over the past decade—but it is now a sector in crisis. Given the land prices developers were prepared to pay and the house prices that they were prepared to charge, not everyone will have much sympathy for them, but the fact remains that it is not a crisis entirely of their own making. After all, the banks were throwing money at them to buy land at these significant prices, and they were putting up the money in very generous mortgage deals at 100 per cent. and 125 per cent., which fuelled the market, but we are now seeing a virtual collapse of that market with the banks putting the squeeze on some of those very same businesses. Houses are available at much lower prices than were sought last year, so it is paradoxical that they are now in market terms out of the reach of many people, who can no longer access the finance to buy them.

Given the commitments of the Government and the various Administrations around these islands to affordable and social housing, positive intervention is important. We need more effective intervention to ensure that houses that should be available at lower prices are available at lower prices. Influencing the banks is a key factor, because they have moved from over-lending to under-lending as far as that market is concerned. Action needs to be taken to strike a better balance.

I argued earlier that the credit crunch has become a consumer crunch, and I want to close by mentioning my visit to a credit union in my constituency. Those working there told me that they are now being asked for loans so that people can pay their fuel bills or cope with significant household bills, including groceries. That is a new situation for credit unions. Some of the older credit unions may have faced it many years ago and some may have started by helping people to cope in that way, but now that problem is biting again, it really is a call to us all to wake up and see what we can do.

I accept what the Government say about their good economic management over the past 10 years, and I also respect what they say about all their headline macro-policy initiatives, but policy management does not always help people to cope in circumstances where they have to turn to a credit union to cope with an oil
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bill. If this is happening as we come into the summer, what situation are people going to face as we move into winter? It was good to hear from the Financial Secretary that the Government appreciate the pressures that people are experiencing, as it is important that they feel the pain of those who are struggling on marginal incomes with ever-rising bills. However, it is even more important that the Government translate that into significant action and real intervention that helps real people to cope with very real pressures.

2.59 pm

Dr. Vincent Cable (Twickenham) (LD): Let me add my congratulations to the hon. Member for East Londonderry (Mr. Campbell). A couple of weeks ago we had an Opposition day debate on the same subject, but no Ulster Members had an opportunity to speak on that occasion. As I do not want to restrict the time available to the hon. Member for Upper Bann (David Simpson), who is obviously waiting to speak, I shall be fairly brief.

A couple of distinctive Northern Irish issues are relevant to the debate. The first is that as Northern Ireland has a large rural hinterland, it is probably proportionally more affected by transport costs and by a relatively poor train system. The impact on the farming community is particularly significant, and it involves factors that also affect Scotland, Ireland, Cornwall and other parts of England.

A second issue that was mentioned by neither the hon. Member for Foyle (Mark Durkan) nor the hon. Member for East Londonderry is Northern Ireland’s proximity to the Irish border. Nowadays there is a large amount of cross-border trade and movement across the Euroland frontier. Anyone importing goods from southern Ireland or crossing the border to buy them will know of the substantial impact of sterling devaluation against the euro, which is probably about 15 per cent. That currency change is an important element of the increased cost of living in Northern Ireland, which may be mentioned in the winding-up speeches.

I want to develop some of the points made by the Minister and the hon. Member for Putney (Justine Greening) about the oil sector. Although the motion contains nothing desperately controversial—it is worded very openly, and I am happy to support it—I worry, like the Minister, about the constant references to a windfall from oil. It is tempting to jump on to the bandwagon, as the Conservatives and the Scottish National party have, and I am tempted to imagine that there is a pot of gold that can be spent on good causes, but I want to dwell a little on where the money comes from.

The sums that I have seen suggest that if we are talking purely about the existing windfall tax from the North sea—the petroleum revenue tax and the extra rate of corporation tax—if oil prices were maintained at their present level throughout the financial year, there could be an extra £6 billion from that source and, on similar assumptions, £3 billion or £4 billion from value added tax. That apparently quite large sum would come simply from higher oil prices.

There are two points to be made. First, we are talking about not a separate silo, but a single stream of Government revenue. What is happening to oil revenue is no different from what is happening to stamp duty or income tax.
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Some taxes are going up, while others are going down. This is not free money waiting to be allocated, and if it were allocated to something else there would presumably be an opportunity cost. That is the obvious point.

Secondly, there is a slightly more subtle point, which I think the Financial Secretary was trying to make, although I do not know how subtle it proved to be because I had to leave the Chamber. It is an economic point: as the fact that oil prices are rising contributes to a slow-down in the economy and therefore has an impact on income tax, corporation tax and all the other taxes that are going down, it is questionable whether there is a net revenue gain.

I am on the Financial Secretary’s side, and I am somewhat sceptical about the existence of a net gain. The think-tanks have clearly reflected on the matter, which they consider to be complex, and they have not come up with any definitive conclusions. I think it would help the Government to make their own case, not only with Opposition parties but in the drawing rooms and pubs of Britain, if they explained the model that they use to produce their figures. I do not know whether the outcome would be positive or negative, but I think it would increase their credibility if they explained their calculations rather than the Financial Secretary simply telling us that she has the information on good authority. After all, it may or may not be good authority.

The hon. Member for Putney spoke of the new approach to the duty regulator. She is to be commended for coming up with a new idea that deserves serious discussion, and although I think that she will acknowledge that it is based largely on an idea that the Scottish nationalists have been advancing for some years, it has joined the mainstream of the debate, so let us discuss it.

On the basis of what the hon. Lady said today and what I heard her say on the radio during the rain intervals at Wimbledon on Sunday, I think that I have pieced the argument together, and I do not think what she is saying is enormously different from what the Government are doing. When oil prices rise, a decision is made not to increase the escalator. The difference is that the Government do that on an ad hoc basis, while the hon. Lady suggests that it should be done according to a formula.

During our last debate on the cost of living, the Chief Secretary acknowledged that the price of petrol had been reduced by, I think, about 16p a litre as a result of the freezing of the escalator since 1999. The hon. Member for Putney argues that such action could be taken more effectively if it were taken systematically. Her explanation—it was more detailed on the radio than it was today—is that because there is a cycle in prices, we can be reasonably confident that when prices rise the duty can be withheld, and when they fall again it can be increased. It all balances out in tax-neutral way.

The problem is that the oil market does not actually work in cycles. In the 19th century, when Daniel Day-Lewis was drilling for oil, there was a cycle, and then for the best part of a century there was not, because the oil industry was controlled by companies that had access to cheap oil. They controlled the supply to keep the price flat. Since then, we have had three rather random shocks: one caused by a cartel, one caused by a war and one caused by specifically economic conditions—rapidly rising demand in Asia and restrictions in capacity.

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I think that to create a model based on the idea that there is some regular cycle, as the Conservatives seem to be proposing, does not correspond to the way the system works. To make their proposal work, they would need a reference price—a trend price—against which they could make judgments on whether the price was above or below normal. The price would have to be established somehow, and I do not know how they would establish it.

The honest truth is that no one, whether they know a lot about the oil industry or not, has the faintest idea what will happen to world oil prices. They could continue to rise indefinitely, as some theorists argue. If that were to happen, under this proposal there would have to be a permanent freeze on increased revenue, leading to a black hole of some kind which would have to be explained. The price might come right back down again because of a recession or increased supply, in which case the Conservatives would be able to pick up revenue, but they have not explained whether that would be possible to the extent of cancelling out the original concession, and whether there would be indexing. It would all be very difficult, although I do not want to be too damning, because the idea may be in its preliminary stages.

The hon. Lady was absolutely right to say that what she proposes would stabilise the impact on households. That is obviously true, and it is an advantage of her approach. It is, however, untrue to say, as she did, that it would stabilise Government revenue, because it would do the opposite. That is a simple matter of logic—it must destabilise Government revenue. When the hon. Lady’s proposal is analysed by the Institute for Fiscal Studies and others, they will make that point very strongly. Putting in the hands of a future Chancellor a policy that destabilises Government revenue would not be terribly helpful. Perhaps we should return to the issue later, but it has some relevance to the debate, because the motion refers to the potential source of oil revenue.

The Conservatives are pushing their constructive idea on oil prices, and I am pushing mine on the housing market. I want briefly to refer to, as the hon. Member for East Londonderry has mentioned, the impact of the slow-down in the housing market in the Province. I should, perhaps, be less kind now to the Financial Secretary, as we had a debate a few months ago on what was happening in the housing market, and I ask her to read some of the things she said then, when I was accused of scaremongering, exaggerating and finding doom in that otherwise happy corner of the economy. If she looks back, she will find that what I was saying was deeply conservative compared with what is now happening with the falls in sales and prices and the ripples felt in the building industry, which have had devastating consequences, and which none of us, including me, had anticipated.

I commend to the Financial Secretary an idea that I and others, including some Labour Members, have been putting forward. One way of helping to stabilise the situation, and also of doing an important social good, would be to take advantage of the fact that there are now substantial amounts of unsold property and unfinished developments—including, I suspect, in the fairly prosperous suburbs around Belfast and elsewhere—which social landlords such as the council and registered
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social landlords could acquire at a very substantial discount and make available for rent on the basis of need. There is a major opportunity for the Government not to intervene directly, but to empower social landlords to do that. It would be a very attractive economic proposition. I am aware that it would raise borrowing levels, but as an economic intervention, it would be a sensible and helpful thing to do, and I ask the Government to reflect on that.

3.11 pm

David Simpson (Upper Bann) (DUP): I am sure that those at home who might be watching this debate will be saying to themselves, “We’re not interested in the technicalities of why there are difficulties; we’re interested in how much money will be in our bank accounts and pockets to pay bills.” Come September, households will have to face buying school uniforms and other things for their kids, and shortly after that we will be facing the Christmas period. Those of us who do a lot of work on the large housing estates in our constituencies will know exactly how those folk have to live. This is a very difficult time for them. The Financial Secretary mentioned the word downturn in relation to the economy. I am sure that Members will agree that this is more than just a downturn. The debate focuses on Northern Ireland, but I believe that the whole of the United Kingdom will face a very difficult time over the next three to four years.

I wish to rehearse certain points and facts mentioned in the debate that need to be reiterated. The price of oil has reached an all-time high, and that is causing a major difficulty. Petrol prices have surged in the last year, and motorists across the United Kingdom are paying in the region of £14.3 million more per day than they were 12 months ago. The hon. Member for Twickenham (Dr. Cable) mentioned transport. It is a vital and integral part of delivering goods and services not only in Northern Ireland, but across the UK.

The Financial Secretary is currently absent from the Chamber, but I wish to pay tribute to her. She visited Northern Ireland on Monday past in her Treasury role in order to investigate the issue of the illegal fuel that is coming into Northern Ireland via the Republic of Ireland. That is a major difficulty. As Members know, there was a large lobby here last week, and we met representatives from a number of transport companies from Northern Ireland who told us about the difficulties they were facing.

Reference has again been made to the south of Ireland and the economy, and I am very glad that my party did not move towards having an all-Ireland economy as recommended by the party of the hon. Member for Foyle (Mark Durkan). If we had done so, we would be facing even more difficulties, because the so-called Celtic tiger which, we were told, was on fire for so many years, is starting to wither like grapes on a vine. Sadly, it is going down the tubes, as we in Northern Ireland would say. We did not go down such an all-Ireland route, but the Government must pay attention to the issue of the fuel coming into Northern Ireland illegally.

Mark Durkan: Surely the case for an all-Ireland economy is reinforced by the current situation? Part of the answer for consumers to the question of energy costs is to make sure that we have a more active competitive market, and the way forward on that is to have a strong island market and then a stronger market within these islands.

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David Simpson: To a certain extent, I take on board the hon. Gentleman’s point. However, he will know that in November last year we linked up our electricity through an interconnector, but we are told that Northern Ireland will not receive the benefit of that for some years, and the reason is that the power plants in the Republic of Ireland are so old that they need a lot of investment in repairs and so forth to come up to the level of what we would term efficiency.

Sammy Wilson: Does my hon. Friend accept that all the evidence so far is that the single electricity market, which in the Irish Republic is dominated by the Government-sponsored monopoly ESB—the Electricity Supply Board—has added to fuel costs in Northern Ireland, not reduced them?

David Simpson: My hon. Friend makes a valid point, and I entirely agree with him.

Farming and food production make a major contribution to the Northern Ireland economy, more so than in any other region in the United Kingdom. Agriculture contributes 0.5 per cent. towards the total gross value added across the United Kingdom, but the figure for Northern Ireland is 1.3 per cent. It therefore follows that pressures in agriculture are felt twice as much in Northern Ireland as they are across the United Kingdom as a whole. The farmers in Northern Ireland also experience twice the degree of hardship as a result of rises in the cost of feed and grain. Across the United Kingdom, 28 per cent. of gross output comes from the cattle, sheep, pig and poultry industries, while the proportion for Northern Ireland is 43 per cent. As a result, Northern Ireland farmers have to purchase more than twice the amount of feedstuff as their mainland counterparts and must therefore bear the cost of grain prices, which have exploded in recent months.

The Government may not control oil production by OPEC, but they do control the amount of taxation levied on fuel, and the UK has the greatest tax burden on fuel of any of the EU countries. The tax on a litre of petrol in Britain is some 57p, compared with 31p in Spain, 45p in Italy, 48p in France and 52p in Germany. The Exchequer has the power to reduce the cost of fuel.

Unfortunately, whenever there is a downturn in the overall economy, small businesses are especially affected. The Federation of Small Businesses has given us some figures on the difficulties that its members are experiencing. A poll carried out by the federation showed that 9,000 small business owners—more than 80 per cent. of those surveyed—said that fuel costs are likely to make it more difficult for them to expand their business and hire more staff in the next 12 months. Nearly 40 per cent. said that fuel costs would make it likely that they would have to reduce staff numbers in the next 12 months.

My constituency has the largest manufacturing work force in the Province—some 9,500 jobs—with the next largest being East Belfast. The businesses that provide those jobs have major concerns that if this trend continues—as economists tell us it will—they will have to pay off massive numbers of staff. That is a sad reflection on the state of manufacturing industry, which is dwindling in many parts of the UK. The Government could do more. Their amendment goes some way, but it does not go far enough. More could be done to help people, not only in Northern Ireland, but across the UK, to get out of the poverty that they are in.

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Eleanor Gill, the chief executive of the Consumer Council, has said of gas prices in Northern Ireland:

I hope and trust that the Government will see a way to help those in trouble out of their difficulties, across the whole of the UK.

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