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Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31 (Questions on amendments), and agreed to.

Main Question, as amended, put and agreed to.

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Fuel Duty

Madam Deputy Speaker (Sylvia Heal): I advise Members that Mr. Speaker has selected the amendment in the name of the Prime Minister and imposed a 10-minute limit on all Back-Bench speeches.

4.13 pm

Mr. Philip Hammond (Runnymede and Weybridge) (Con): I beg to move,

This morning, when I heard the announcement of the Government’s climbdown on the 2p fuel duty increase, my first reaction was to see it as a triumph for Parliament. No sooner had we tabled a motion accusing them of dithering on the issue than they stopped dithering and acted—a triumph for parliamentary democracy. But then I remembered the by-election and the reality that the climbdown is a triumph not for democracy, but for cynical short-term political calculation.

Dr. Stephen Ladyman (South Thanet) (Lab): Can the hon. Gentleman honestly tell the House that he did not think of the by-election when he tabled the motion in the first place?

Mr. Hammond: I am sorry to have to disappoint the hon. Gentleman, but Glasgow, East is not top of the Conservative party’s hit list for expected by-election victories. I know things have got bad for the Labour party, but we like to be realistic and we are not expecting to take Glasgow, East in a by-election, as I can reveal today.

Never mind the protestations that the time to announce any change is the autumn. Forget the always bogus claim that the change was unaffordable because there is no net Treasury gain from soaring oil prices. When the Prime Minister’s neck is on the block, principle is thrown to the wind. Nothing cannot be unsaid. No price is too much to pay. For Crewe and Nantwich, it was £2.7 billion. For Glasgow, East, it is £1.1 billion a year in perpetuity. For the Prime Minister’s sake, let us hope that he gets better value for money in Glasgow, East than he got for his £2.7 billion in Crewe and Nantwich. As my right hon. Friend the Leader of the Opposition said yesterday, we will have to take good care of Members of Parliament for the next 18 months, because at this rate the public finances cannot stand the cost of too many more by-elections. With the 10p U-turn and 2p U-turn now out of the way, I presume that it is only a matter of time—or perhaps timing—before we hear an announcement of the car tax U-turn.

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Mr. Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab): As someone who spent time recently in Glasgow, East, and not for the first time, may I put it to the hon. Gentleman, first, that his hon. Friends will be astonished that he has conceded the by-election, and secondly, that nothing he has said so far relates remotely to anything I have been hearing in Glasgow, East?

Mr. Hammond: I do not know which doorsteps the right hon. Gentleman has been on in Glasgow, East, but that is not what I hear from my hon. Friends who have been there.

After months of dithering, we have a decision—I know how difficult the Prime Minister finds it to make decisions—to cancel the tax rise in the run-up to an election. It is not surprising, as the soaring cost of living is the No. 1 concern for families in Glasgow, East and elsewhere. With earnings growth stagnant for the past two years, household debt at record highs, housing asset values sliding, and the price of everything we consume soaring, is it any wonder that families are feeling the pinch? Inflation is at its worst level for 16 years—more than double the rate the Government inherited from their predecessor in 1997. The latest figures published this week show the consumer prices index up 0.5 per cent. in a single month to nearly twice the Government’s target, and factory gate prices rising 10 per cent. in the year—the biggest annual percentage increase since February 1982, and an indicator of potential further consumer price inflation to come. The Governor of the Bank of England warns that inflation is likely to rise still further and to persist at the higher level until well into 2009.

At the heart of that inflationary pressure is the soaring cost of oil, and the consequential increases in the price of petrol and diesel at the pumps. More than a quarter of the increase in consumer prices over the past year is due to the direct effects of fuel price increases, not counting the indirect impact that increasing fuel prices have on the cost of goods and services throughout the economy.

Lembit Öpik (Montgomeryshire) (LD): Is the hon. Gentleman aware that in my constituency average salaries have gone down 4 per cent. in the past 12 months? Coupled with the necessarily high dependence on private transport in a rural and sparsely populated area, the effect of the increase in fuel costs is exacerbated for those poorer individuals in Montgomeryshire.

Mr. Hammond: I recognise the hon. Gentleman’s point. The situation is worse in some places than others, but families across Britain are feeling the pinch.

The Government say that the problem is international—“Nothing to do with us, guv.” But about 60 per cent. of the current retail price of fuel is accounted for by tax. At 115p—nice work if you can find it—the price of a litre of unleaded petrol is made up of just over 50p in fuel duty and 17p in VAT. Before I spell out the detail of how our fair fuel stabiliser will work, let us consider the system—for want of a better word—that is in place.

Instead of cushioning the blow and helping families to cope when oil prices rise, under the present system the Government add to the rising cost of living. Fuel duty is set to rise every year by at least the rate of inflation, regardless of what happens to the price of oil, before taking account of VAT, which rises automatically
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as prices rise. But that does not mean that the system runs smoothly. Inevitably, there is annual pressure on the Chancellor and the Prime Minister to postpone or cancel increases in fuel duty—a practice that the Prime Minister adopted regularly during his term in the Treasury. That pressure intensifies, as we have seen, if a Government are in trouble or face a tricky by-election. Far from automatic inflation increases in the rate of duty occurring predictably, the level of real duty is the subject of short-term political calculation, year after year, with the inflation increase having been cancelled or postponed in five years out of the last six, creating uncertainty for businesses and families, making the public revenues less predictable, and weakening environmental signals in the tax regime.

Pete Wishart (Perth and North Perthshire) (SNP): In the past few months, the Conservatives have accused the Labour Government of nicking some of their ideas, and they are right to do so. I know that the hon. Gentleman is a fair-minded Member of the House. Will he therefore accept and acknowledge that his stabiliser, or whatever it is called, is a direct snatch from the Scottish National party? Will he explain why, when the idea was put to the Finance Bill Committee by my hon. Friend the Member for Dundee, East (Stewart Hosie), the Conservatives inexplicably failed to support that measure?

Mr. Hammond: I welcome the hon. Gentleman’s contribution, and I am happy to acknowledge the work that the Scottish nationalists have done on the challenges that we face on fuel prices, but I am going to reveal something to the House: the original author of the fair fuel stabiliser idea is, I think, none other than the Foreign Secretary. Hon. Members may remember that he urged the then Chancellor a couple of years ago to introduce something similar in his Budget.

Mr. Siôn Simon (Birmingham, Erdington) (Lab): It is enlightening that the hon. Gentleman manages to pray in aid the Foreign Secretary. The hon. Gentleman and I were on the Finance Bill Committee for seven weeks, and the hon. Member for Dundee, East (Stewart Hosie) did indeed propose the policy. Not only did the hon. Member for Runnymede and Weybridge (Mr. Hammond) not support it in Committee—and I think he voted against it on the Floor of the House—but he explained at some length in Committee why it was a wrong policy.

Mr. Hammond: My recollection is that the measure put forward by the Scottish nationalists in Committee was not as set out by the hon. Gentleman. However, before he rallies around the Chief Secretary in what he might think is a career-enhancing move, he should think about how it was the Foreign Secretary who urged the now Prime Minister to adopt the policy. The hon. Gentleman might think about his career prospects in those terms.

Mr. Simon rose—

Nigel Griffiths (Edinburgh, South) (Lab) rose—

Mr. Hammond: I am going to make a little progress.

As usual this year, the Government have dithered and prevaricated over the 2p rise originally scheduled for
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April, then postponed until October, and now off the table in July. Who knows what would have happened if it were not for the by-election? We had a nod from the Prime Minister at the Liaison Committee on 3 July when he said that

There was a wink from the Chancellor on 28 May when he said:

That is not a sustainable way to make tax policy. Instead of a clear formula based on transparent principles that people can understand, it is an ad hoc system driven by the political convenience of the Prime Minister rather than by sound economics.

Nigel Griffiths: If the SNP’s policy was not, as the hon. Member says, the policy that he is proposing, why did he not propose it when he had six weeks to do so in the Finance Bill Committee? Is this just another policy that is blowing in the wind?

Mr. Hammond: We work hard on our policy announcements. We base them on sound research, which I shall be quoting in a moment, and we consult on them, unlike the Government, before we introduce new tax proposals.

Dr. Ladyman: Will the hon. Gentleman give way?

Mr. Hammond: I will make a little progress because the hon. Gentleman has intervened once already.

There is a better way. At times like this, people look to their Government to help them—to give them a hand when times are tough. The UK’s unique advantage as an oil producer allows us to offer support to families when oil prices soar, to stabilise the public finances and make them more predictable, and to reinforce the long-term green signals that the tax system sends by adopting Conservative proposals for a fair fuel stabiliser that will build in the kind of response that we heard from the Government today, not as an ad hoc political statement but as an automatic and thus reliable response to rising oil prices. We must operate in that way if we are to deliver the climate of economic stability that Britain needs. We need government by clear principles, transparently and consistently applied, not government by nods and winks.

While the Labour party, clinging to office, treats fuel duty as a short-term political football and people like fools, the Conservatives in opposition have been doing the work to come up with clear, well thought through proposals to introduce the fair fuel stabiliser that Britain clearly needs. Before I explain how it would work, let me list five principles that we have set out which a reformed system of fuel duty should observe.

First, any reform must help families when the cost of living is rising, because part of the function of Government is to dampen the shocks that the economy receives by putting something aside during the good times to help out during the more difficult times. Secondly, any reform should reduce the inflationary impact on the economy from fluctuations in international oil prices. Thirdly, because of Britain’s position as an oil-producing country,
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reform should reduce the sensitivity of the public finances to changes in oil prices, improving the Treasury’s ability to forecast and budget for the future. Fourthly, despite—or perhaps because of—the immediate challenge posed by soaring oil prices, we should not lose sight of our long-term green agenda. Any reform should provide more certainty about the price of carbon, encouraging the long-term shift towards lower-emission vehicles and alternative methods of transport that will be necessary to meet our climate change objectives. Finally, any reform should be transparent and simple to administer.

Lynne Jones (Birmingham, Selly Oak) (Lab): Will the hon. Gentleman, or the shadow Chancellor, be responding to the letters in Monday’s edition of the Financial Times, not least from the hon. Member for Twickenham (Dr. Cable) but also from Charles Brendon of Exeter College, who suggested that the Conservative party’s economic capabilities were somewhat limited?

Mr. Hammond: We will not take any lectures from Charles Brendon of Exeter College. The hon. Lady may or may not have done her research, but Mr. Brendon is a Labour party activist and a graduate student at Exeter. However, in a moment, I will refer to the letter in the Financial Times from the hon. Member for Twickenham (Dr. Cable) and to his previous comments.

Stewart Hosie (Dundee, East) (SNP): The hon. Gentleman has referred to the environment. Although managed increases such as the Government’s proposed new fuel duty escalator from 2010, with duty rising annually at 0.5p a litre above inflation, may well squeeze out unnecessary usage, does he agree that the reason we need a regulator-stabiliser-moderator is that when massive spikes are unmoderated, the use of managed increases as an environmental tool is completely destroyed?

Mr. Hammond: I entirely agree. We must also bear in mind that there are downward movements in oil prices as well, which undermine the incentive to invest in fuel-economising technology.

So what is the fair fuel stabiliser? Let me put it simply: under a fair fuel stabiliser, when oil prices went up, fuel duty would fall, and, in a quid pro quo, when oil prices went down, fuel duty would rise. If our fair fuel stabiliser had been introduced in the 2008 Budget, fuel would be about 5p a litre cheaper at the pump, which would save about £3.50 on a tank of fuel for a Ford Mondeo, and inflation would be not 3.8 per cent. but about 3.3 per cent. Government revenues would not differ from the Budget predictions, which were based on an oil price of $84 a barrel. [Interruption.] It is amazing—is it not?—that the Treasury Whip, the hon. Member for Waveney (Mr. Blizzard), who sat in complete silence throughout the passage of the Finance Bill, now apparently cannot keep his mouth closed. He seems to have plenty to say.

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