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Dr. Vincent Cable (Twickenham) (LD): I welcome the debate, partly because it gives us an opportunity to reflect on the statement that the Government made this morning. I do not know whether the decision was made
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because of the by-election or because of general political panic, but it was not a coherent policy statement and it does not give us key information, as the right hon. and learned Member for Rushcliffe (Mr. Clarke) pointed out.

The debate also gives us an opportunity to review the SNP-Conservative proposal—we should call it the Salmond-Osborne plan and give credit for authorship where it is due. I remember that several years ago, before the hon. Member for Dundee, East (Stewart Hosie) came on the scene, the right hon. Member for Banff and Buchan (Mr. Salmond) set out the bones of the proposal. Although I do not necessarily agree with it, I want to award it proper authorship, and the “Salmond” comes before the “Osborne” in the description of the plan.

There is some common ground in the debate: everyone accepts that higher fuel prices have caused hardship and that it would be desirable, if possible, to find some way of alleviating the impact on motorists.

Nigel Griffiths rose—

Mr. Alan Reid (Argyll and Bute) (LD) rose—

Dr. Cable: Let me finish my point and then I will take interventions.

We are especially concerned about the impact on people in rural areas, particularly remote rural areas, who do not have the alternative of public transport. If there were an intervention at this stage to help to alleviate the burden and share the pain, a targeting method would be better, examining differential duties in remote rural and in urban areas.

Mr. Reid: My hon. Friend has pre-empted my intervention. I support his comments that remote rural areas need a rural fuel discount. For example, the cost of unleaded petrol on Port Ellen on the Isle of Islay is 15p more than at Glasgow airport. That shows the effect of the higher cost of fuel on the islands and the damaging effect on the economy. I am therefore pleased that my hon. Friend supports the rural fuel discount plan that we proposed on Report of the Finance Bill.

Dr. Cable: I thank my hon. Friend for that intervention and I am happy to take one from another remote rural area—Edinburgh, South.

Nigel Griffiths: The hon. Member and I have corresponded on the issue. Two years ago, the hon. Member for Argyll and Bute (Mr. Reid) called for a spending commitment to reduce tax on petrol and diesel in rural filling stations. He has long campaigned on that. The hon. Member for Twickenham (Dr. Cable) wrote back: “Alan was not, of course, advancing official policy. We are certainly looking at the implications of the recent European derogation of petrol duty to see if we can adopt it as policy”. In those two years, what conclusions has he reached?

Dr. Cable: We have found that the policy is feasible in practice and entirely sensible and right. My hon. Friend the Member for Argyll and Bute (Mr. Reid) is right to
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have persisted with the matter. It can be financed by cross-subsidy or a small subsidy in relation to the sums of money that we are discussing today. I therefore endorse the policy, on which we have voted.

Let me try to work systematically through the Conservative motion. It gets off to a slightly odd start because it states that diesel duties in the UK are higher than anywhere else in Europe. First, that is not true—Norway has higher diesel duties, but that is by the by.

Stewart Hosie: What about Germany?

Dr. Cable: Let me finish the argument and then I will take an intervention. It is odd that the hon. Member for Runnymede and Weybridge (Mr. Hammond) spoke for half an hour but did not deal with the practical problems that arise from the fact that the UK has exceptionally high diesel duty. There is a policy problem because we know that large-scale tax arbitrage—in other words, smuggling—takes place, and there are practical proposals to deal with that, whether through the original Britdisc scheme or some cruder system of taxing European vehicles at the points of entry and exit to account for road use. We should be discussing that because there is a genuine problem in that the current policy—or lack thereof—results in a substantial leakage of revenue. It is a pity that we did not go further into the subject of diesel.

Sammy Wilson: Does the hon. Gentleman recognise that the leakage to which he refers is particularly severe in Northern Ireland, because of the differences in duty between the Irish Republic and Northern Ireland? Indeed, those differences have led to large-scale operations by gangsters, who take hundreds of millions of pounds out of the economy every year through fuel smuggling.

Dr. Cable: Yes, I realise that Northern Ireland has special problems because it has a land border. Any system to counteract smuggling is bound to face difficulties because of the small rural roads that exist across Northern Ireland. None the less, we need to stop that large leakage of revenue, which also does great damage to the British road haulage industry.

Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): My hon. Friend mentioned the Britdisc, which the Government abandoned. Does he think that road pricing for hauliers would be one way of ensuring that foreign lorries paid the same as lorries from this country and removing unfair competition from overseas lorries, which currently rely on cheaper fuel to take trade away from British hauliers?

Dr. Cable: That would be one way. Another way would be to check mileage at the points of entry and exit, and to charge a duty accordingly. There are various ways of dealing with the problem; I am simply surprised that we did not deal with it in the earlier exchange.

The other odd thing about the motion is that it singles out diesel, because of the exceptional rate of British duty. Given that this debate has been overwhelmingly about petrol, I am surprised that there have been no references to differential rates in petrol. As it happens, Britain has, I think, the eighth highest petrol duties—it is mid-table, according to the Automobile Association.
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Germany, Belgium and Italy have higher petrol duty than the UK, as a result of the various postponements to which the Ministers referred. By far the highest rate is that in Norway.

Norway is an interesting example. The Conservative spokesman said that Britain was in the unique position of being an oil producer that also consumed a great deal of oil. Britain is not unique, because there is another European country with those characteristics. There is a question to be asked of the Norwegians, but to which I do not know the answer—perhaps we should have a charter flight to Norway with the SNP and the Conservatives; I would be happy to go as an observer—as to why they do that. I suspect that one of the reasons is that the Norwegians are conscious, in a way that we perhaps are not—and as the Conservatives certainly are not—that oil is a valuable resource that needs to be conserved. The Norwegians use their tax policy to that end. We should therefore perhaps not be too flippant in dismissing that important history.

Rob Marris: In defence of the hon. Member for Runnymede and Weybridge (Mr. Hammond), I listened to him very carefully, and he said that we were in an “almost unique” position. I have spent a number of years in Canada, and it strikes me that, as well as Norway, to which the hon. Gentleman is referring, Canada is a major oil producer and a major western country. Indeed, it is a member of the G7. That is one of the reasons why I asked the hon. Member for Runnymede and Weybridge whether he was aware of any other country that had introduced a so-called stabiliser.

Dr. Cable: Indeed, Canada is another country that is both conscious of the environmental impacts and the need to conserve its valuable resources.

Mr. Philip Hammond: I am delighted and grateful that the hon. Member for Wolverhampton, South-West (Rob Marris) sprang to my defence. I made the reference twice: on the first occasion I referred to Britain being unique among EU countries, and on the second occasion I said it was almost unique among industrialised countries. From the comments that the hon. Gentleman has just made, it appears that he thinks the policy proposal that we have put forward applies only to petrol. It applies to fuel—it applies to diesel, as well as to petrol. I want to be absolutely clear about that.

Dr. Cable: That is very helpful. I thank the hon. Gentleman for that clarification and I acknowledge his point. The motion does not deal with differential rates; in fact, I think it would make that problem rather more complicated. None the less, I take his point and I am sure that it has been noted.

Let me move on to a second point in the Conservatives’ motion, which accuses the Government of dithering. They obviously like that word, because we keep hearing it—I know that it rhymes with “wuthering”, which makes quite a good joke. However, if I were trying to develop a serious critique of Government tax policy, I am not sure that “dithering” is the word that I would use. After all, the main criticism is not that the Government have dithered, but that they keep rushing in with not very well thought out proposals—capital gains tax, non-dom tax and inheritance tax come to mind. “Dithering” is perhaps not the proper criticism.

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Perhaps, however, I could make a case for dithering. There is an argument for dithering in a case such as this. We do not know what the oil price will be in the autumn, and we have no idea what the revenue position will be. It has been rather embarrassingly exposed that the Government have not even made any preliminary estimates of that. Surely it would be sensible to wait until the autumn before rushing into a decision on fuel duty—

Mr. Hammond: There is a by-election.

Dr. Cable: Indeed there is a by-election.

There is a sensible economic case, if not a political one, for waiting and not rushing into this decision. As I understand it, the problem has arisen entirely because of the way the Government have subordinated their tax policy to our rather peculiar definitions of recess. They have had to make their announcement now because they had committed themselves to a policy change on 1 October. Had they said in the spring Budget that the decision would be made in mid-October, we would not have had this problem and the Government would have given themselves the freedom to make a much more considered, balanced and sensible decision than the one that they have been rushed into.

Mr. Hammond: On a point of information, the Prime Minister’s spokesman said on the record a couple of weeks ago—I have the quote somewhere among my papers—that there was no requirement for an announcement on the postponement of the duty increase to be made while Parliament was sitting, and indeed stated explicitly that such an announcement could be made during the parliamentary recess.

Dr. Cable: That is very helpful, because I have been taken to task for saying exactly that. I am glad to get a bit of support, for once, from that side.

Mrs. Maria Miller (Basingstoke) (Con) rose—

Dr. Cable: I will take one more intervention, and then I will plough on.

Mrs. Miller: In telling the House why the Government might do better to dither, is the hon. Gentleman saying that the Liberals want to see the 2p tax rise happening in the autumn? Would he want businesses and families face to uncertainty over that tax rise throughout the summer?

Dr. Cable: I did not say that at all. I said I would very much like to wait and see what the position was in the autumn. If oil prices are indeed going through the roof and—who knows?—if there is an invasion of Iran and prices are completely out of control, people will obviously expect the Government to take compassionate remedial action to protect households. That would be entirely understandable. However, oil prices might well go the other way. Nor do we know how serious the impact of the decision on Government revenue will be. I am not making an argument for pressing ahead with the decision today. All I am asking is that we get a considered judgment, when we know what the Government revenue position is—which we do not at the moment.

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Stewart Hosie: We do know that oil prices are going through the roof. We know that the price at the pump is going through the roof, with half the 35p rise last year happening between mid-April and mid-June. We also know that many of the hauliers who were here protesting two weeks ago told us that they will not be in business by the time of the pre-Budget statement. I believe in evidence-based policy making, and surely we now have enough evidence to say that the Government should have not only postponed the 2p rise but introduced measures to help people much earlier than they have done.

Dr. Cable: I am all for introducing measures to help if they are practical and affordable. However, I think the hon. Gentleman’s view of the oil market, which I know he has thought about, is based on the assumption that there is a spike, and that we need to deal with spikes. That might be true; I do not know. Certainly, my years in the oil industry have led me to believe that these things are very difficult to predict. I am therefore not as comfortable as he is that this is simply a temporary spike that needs to be dealt with on that basis. However, I totally accept his point that there is hardship and that road hauliers have a genuine problem, and of course we need to consider measures to help them, which is why we have focused on rural areas.

As I have had various helpful interventions from the Conservatives, I shall now turn to their own proposals and the consultative document that they have put forward. This might produce some less friendly interventions. Underlying their proposal is an assumption that it would be sensible to pool oil revenues from one sector of the economy. Their basic underlying idea is that we should have upstream oil windfall taxes and taxes on the product, and that these should be pooled and evened out. I do not understand why that should be the case. Other sectors of the economy have different streams of revenue that we would never dream of pooling in that way. For example, council tax is going up and stamp duty is going down, but we do not argue that we need a property tax regulator. It would be a strange economic arrangement if we were to have such a thing.

Mr. Hammond: I think the hon. Gentleman is suggesting some philosophical or moral reason for linking the two, but I do not believe that at all. It is simply a practical observation that there is a linkage in that when oil prices are rising, the Government inevitably and necessarily achieve a windfall—from corporate taxes, petroleum revenue tax, North sea production and so forth. It thus provides a pool of revenue that always rises when the international price of oil rises. That is what enables this offsetting mechanism to be introduced.

Dr. Cable: I am trying to be not philosophical but practical in asking why this should be pooled with other sources of oil revenue. One of the reasons I ask the question, which concerns the silo approach to taxation, is that a few weeks ago the hon. Gentleman’s colleagues produced a paper on the cost of living that had a different silo and a different box, whereby environmental taxes went into something called a family fund. There is a perfectly good reason for pairing the two, and we believe that environmental taxes should be offset with income tax. Three weeks ago, we heard the argument that green taxes, including taxes on fuel, should be put
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into a box and offset against income tax, but now we hear the argument that they should be put in a separate box and offset against upstream oil tax. Quite where this comes from—other than the fact that it makes a neat fit at a particular point in time—is difficult to say.

Let us pursue the Conservative argument. The case is that there is a real windfall of revenue from the upstream oil sector. The Conservatives may well be right: we heard the argument last week; they have gone through a model and it is creditable that they have done their homework to that extent. The Government have a different model and have reached a different outcome, and they should perhaps tell us what it is and publish it. I am willing to accept, however, that the hon. Member for Runnymede and Weybridge may be right and that the Conservative model is better than the Government’s model. I do not know, but let us assume for the moment that it is and that there is a real windfall here. If we really have a windfall from North sea oil revenue, the question that arises is what is the most sensible way of using it.

Over the past few weeks, I have been going round the media studios, following or leading the hon. Member for Runnymede and Weybridge. Whenever I listen to his interviews, I always hear his phrase about a “hole in the roof”. If there is such a hole in the Government finances, surely that should be the first priority for any windfall gains. That is what most oil-producing countries would do: if they have a windfall in oil revenue from their upstream producers, they put it into a separate sterilised fund in order to stabilise public finances. Surely that is what is required. It should be used either to reduce Government borrowing this year or to pay off Government debt. Either the Conservatives do not believe their own propaganda about holes in the roof or they are not taking it very seriously.

Mr. Hammond: But surely the hon. Gentleman would acknowledge that holes in the roof need to be fixed while the sun is shining. Surely he is not advocating pro-cyclical fiscal policy.

Dr. Cable: In terms of oil revenue, I would have thought that the sun was shining. Is that not the whole point? The sun is shining on the North sea, so should not any extra revenue be used to stabilise public finances? I find it difficult to understand why the Conservatives would not give priority to that. I am trying to be sympathetic and to understand their argument. They seem to be saying that fixing the hole in the roof has to wait because there is such pain about and families need to be helped. I understand that argument. They want to introduce some mechanism that spares the pain for families by ensuring that taxation reflects the deteriorating conditions in the economy.

It is fair to say that a lot of taxation operates on that principle. Income tax goes down if incomes go down, with people moving to a lower income tax bracket. Stamp duty goes down if house prices go down, and people move into a lower bracket. The posh term for this is “automatic stabilisers” and I think that what the Conservatives are trying to do is to turn petrol duty into an automatic stabiliser. There is nothing fundamentally wrong with that, except that what happens with automatic stabilisers is that the revenue is much less predictable and that with a downturn in the economy, the deficits are much bigger.

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