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In the autumn, we will have a test of the sincerity of this conviction, as the Government are going to face the House with some truly awful deficit figures for this financial year. I am fully confident of that. The hon. Members for Runnymede and Weybridge and for Tatton (Mr. Osborne) might jump up and say, Well done, Government. Youre applying your automatic stabilisers. Income tax revenue and petrol duty revenue are going down, and youre sharing the pain with the public, but somehow I do not think that that will happen. I think we will get a lecture on financial discipline, lack of control and excessive borrowing requirements. We will wait and see how that argument develops.
I have read the Conservatives paper, but I may have misunderstood it as it is complicated. They make certain assumptions about the oil price. The hon. Member for Runnymede and Weybridge corrected me a few moments ago, as I had understood them to be saying that they take a price, which happens to be the price that the Government assume in their pre-Budget forecast, and if the price rises above that level, duty is reduced; and if it falls below it, duty is increased. That produces a revenue-neutral process. It is based on the assumption that oil prices go in cycles. We know that that is probably not the case, and that is what worries me about the proposals.
We have no idea what will happen to oil prices in the course of the year. Just notionally, I got one of my team to run the Conservative proposals through a little computer model to work out what the impact would be if, later this year, the oil price reached $200 a barrel. I am happy to pat that across as part of the Conservatives consultation exercise. Effectively, they would be running a deficit of £10 billion a year on that aspect of their policies. The assumptions that one makes about the base oil price are fundamental to the revenue projections that the Government assume. The Conservatives might stabilise the impact on families, up to a point, but the proposals would import to the tax system a great deal of revenue instability.
Mr. Hammond: I have had an exchange of notes with the hon. Member for Wolverhampton, South-West on exactly the same point while the hon. Gentleman has been speaking. He appears to be under the impression that the offsetting factor is the increase in duty in the future when oil prices go down, but the offsetting factor is the increase in Government revenues in the same time segment as a result of high market oil prices, which enable the Government to offset a decrease in fuel duty at the pumpsnot between one period and another, but in the same period.
Dr. Cable: I thank the hon. Gentleman for the clarification. I may have misunderstood as a result of trying to reverse-engineer what the Conservatives are proposing, but I think that what he is now suggesting meets my objection. However, it creates an entirely different problem: petrol duty would have to be set in response to the predictions of the economic model in relation to the net windfall, which is an even more complicated exercise. May I suggest that there might not be any net windfall at all? The proposal would make tax policy unbelievably complicated and unpredictable, and in view of the Conservatives long-term commitment to tax simplification I am surprised that they are proceeding with it with such enthusiasm.
Pete Wishart: We know that the hon. Gentleman does not like the idea of a regulator, a stabiliser or whatever. What would the Liberals do, therefore, to help the hard-pressed motorist? I do not know whether he has been to Glasgow, but the one thing that is consistent on the street is unhappiness with high fuel prices. Would the Liberals do anything about that?
Dr. Cable: I have indeed been to Glasgow and I spent the earlier part of my speech suggesting that there are measures that could be taken. I realise that Glasgow, East is not a remote rural areaI am particularly conscious of that, having lived in the citybut I suggest that we move to a more appropriate system of vehicle taxation. We have vehicle excise duty, which is a blunt way to tax motorists and bears little relation to environmental impact, and we have fuel duty. If we were able to move quickly to a road user pricing system that properly captured the environmental costs of congestion, that would be a much more attractive long-term option for people in Glasgow, East and everywhere else.
Mr. David Chaytor (Bury, North) (Lab): On that very point, the hon. Gentleman has moved his partys policy along considerably in the past two weeks. Two weeks ago, he was opposing the graduated vehicle excise duty on the existing fleet but supporting it on new vehicles. Today, he is proposing abolishing it on new vehicles. As for using road pricing only on motorways and trunk roads, has he thought through the impact of congestion and pollution on all other roads in rural areas and in urban and suburban areas?
Dr. Cable: As we have the vehicle excise duty system, and parking charge systems in certain cities, it seems entirely sensible that an environmental component ought to be built in where possible. My colleagues and I are arguing that in the longer term we move over to a system that more accurately reflects pollution costs, congestion costs and road use. It is a question of time periods. Given that we have the VED system, I have been happy to defend, and have voted for, a wider differential on new vehicles.
Mr. Chaytor: But surely that would not send the signals for demand reduction that my right hon. Friend the Chief Secretary mentioned earlier. For those who drive gas guzzlers, the signals that it sends are that as long as they stay off the motorways and trunk roads, they can drive as much as they want, in whatever vehicle they want, and the emissions of their vehicle are irrelevant. It is a blank cheque for Chelsea tractors in suburban areas.
Dr. Cable: In the longer term, a combination of road pricing and fuel duty will be needed. Essentially, however, one is taxing use, and those who drive vehicles that are prodigious consumers of fuels would pay relatively more.
I want to draw the hon. Gentleman back to the motion and his critique of the Conservative proposals. Does it strike him, as it does me, that the proposals would be incredibly complex? Either we would have changing prices at the pumps every day, or we would be trying to predict what the price of oil might be in a week, a month or whatever the time frame was for
the change due to the so-called stabilisation. Not only would it be a burden on business to keep adjusting to that, but motorists would start second-guessing, saying, I might not fill up my tank today; Ill fill it up tomorrow, because it might change again.
Dr. Cable: To be fair, I had a long discussion with the SNP, and its argumentI do not know whether the Conservatives have carried it forwardis that the adjustment would be every six months. That is the proposal as I understand it. One criticism concerns how on earth the windfall would be worked out, given the complex modelling problem. But it is fair to say that the proposal is not to change the duty every day.
Another aspect of the potential problems arising from an SNP-Conservative approach to oil taxation is that they have different agendas. If I understand Scottish nationalism sufficiently, it seems the idea is not to use oil revenues to keep down petrol prices in Runnymede, Tatton or Twickenham. I think that the scenario goes rather differently: some time in 2010, perhaps there is a change of Governmentwho knows?but there are not many Conservative MPs elected, and they say, There is no legitimacy; lets have a plebiscite. They vote to go their separate ways, and the revenue gets no further south than Edinburgh.
The question of where the revenue goes is to be resolved. I suspect that the unfortunate consequence of borrowing a Scottish nationalist policy is that the Conservatives find that the windfall on which their economic policy is predicated might not exist in two years time. I do not want to anticipate interesting scenarios about British politics; I will leave that to them.
One of the hon. Gentlemans points was particularly well made: those of us who feel that the way that motorists are taxed must change should ensure that we are not double accounting in relation to where the money comes from and goes to. If one revenue is to offset a tax, we must ensure that we are not offsetting in two different places. It is clear to me from the Conservatives recent announcements that they are doing precisely that. As the hon. Gentleman pointed out, their family-friendly proposal is that fuel duties should be put into a pot to offset income tax and be treated as green taxes. However, they are also talking about offsetting those same revenues against motoring taxes. That is clearly double accounting and it does not stack up.
I am not going to attack the principle of what the Conservatives propose because, as I said in an intervention, I proposed something similar in an article on the Progress website. I would claim that they have nicked my policy rather than that of the Scottish nationalists. However, whether it is the SNPs policy or my policy that has been stolen, the only added value that we have had from the Conservatives is that they spent the past three weeks with a thesaurus, coming up with a different word to describe the policy.
Mr. Philip Hammond: I am not sure to what extent it applies to the hon. Gentlemans policy, but it certainly applies to the SNP policy, now that I have had a chance to read its proposal. Let me make it clear: the problem is that it relied on the concept of a windfall from VAT. I acknowledged in response to an earlier intervention that there is, broadly speaking, no windfall from VAT.
Dr. Ladyman: I agree. I do not think that a fuel duty moderator can work if all we are talking about is offsetting VAT increases. We have to look at the whole package of revenues and taxes that motorists are paying if it is to make sense.
Stewart Hosie: For the avoidance of doubt, while the value of the offset was the element of the increase that was accounted for by VAT, I made it perfectly clear in my speech two weeks ago that we were talking about the North sea windfall, which was confirmed in the letter from the Chancellor to my right hon. Friend the Member for Banff and Buchan (Mr. Salmond) only a week before that.
Dr. Ladyman: I am grateful to the hon. Gentleman for clarifying that. If this sort of fuel duty moderator is to work, it has to cover the whole package of revenues for which the Government have to account.
My right hon. Friend the Chief Secretary and her boss the Chancellor have a far more difficult job to do than the Opposition suggest. They have to be responsible for ensuring that there is no black hole in our revenues and that all the Governments spending commitments are fully funded. I point out to the hon. Member for Runnymede and Weybridge (Mr. Hammond) that the Conservatives have a proposal whereby they will stick by our total spending plans. They are not committed to spending the money in the same way, but they are committed to spending the same amount, which means that they also have to be committed to raising the same amount. They cannot offer tax cuts here and there without creating a black hole in their spending plans.
The criticism I would make of the Conservative proposal is that I do not think that the Conservatives have looked at the totality of the package of changes that would have to be made, and I modestly suggest that I tried to do that in my article. Several different changes would have to be made to achieve the green agenda of the Government and other changes. The inspiration for my article came from some of the think tanks that I believe the hon. Gentleman mentioned. I do not believe that what I call the fuel duty moderator was a novel idea. Other people have thought about it as well.
What I would say to the House is that we already have a fuel duty moderator. We have seen it work today. It is called the Chancellors judgment. What he does every so often, and what the two Chancellors have done
11 times since 1997, is to look at the net revenues coming in and the pain or otherwise being felt in the economy and make a judgment about whether fuel duty is going to go up or not. What Chancellors do when they make that judgment is look back at the levels of revenue that the Government are receiving from all the different sources and all the complexities of the economywhether the money is coming from VAT, North sea oil revenue, corporation tax, income tax or all the other things that are happening in the economy at the same time. They then make a judgment on whether the country can afford, or needs, a fuel duty rise. They have made that judgment today, so we can have a fuel duty moderator, but I would not necessarily recommend a formulaic fuel duty moderator such as the one proposed by the Conservatives.
I had not appreciated that the Conservatives were suggesting that their calculation would be made only every six months. My view was that the Chancellor should make a judgment about once every quarter, and should then compare his revenue stream at that point with the predictions in his Budget. If the revenue stream is in excess of his predictions, he should be able to make a change in fuel duty. Why do I consider that necessary?
Dr. Ladyman: Let me make a little progress. One reason why I consider it necessary is that there are 23 million motorists out there who clearly feel that the net package of taxation that they are having to pay is unfair and, as a proportion of taxation as a whole, places too great a burden on their shoulders. I believe that we need to get those 23 million motorists on side with our green agenda, because otherwise we will never be able to drive down carbon emissions from fuel-powered transport. That is why I believe that we must put together a package of measures that will make motorists instinctively feel that the taxation system is a bit fairer than it is today.
Mr. Philip Hammond: I fear that the hon. Gentleman is falling into the trap that he wrongly accused me of falling into earlier. He suggests that the Chancellor could assess revenue outturns in what the hon. Member for Twickenham (Dr. Cable) describes as a silo. However, we have explicitly recognised that the impact will affect more than just oil revenues, which is what the National Institute of Economic and Social Research model suggests. The Chancellor will not be able to make his assessment quite as easily as the hon. Gentleman is suggesting.
A critical aspect that has not been mentioned so far, although I think the hon. Member for Twickenham touched on it, is the freight industry. Although our petrol is far from the most expensive in EuropeI think we are now seventh or eighth on the listbecause we
charge the same duty for diesel as for petrol, we have the highest diesel prices in Europe. People are coming into our country in lorries and stealing work from United Kingdom hauliers.
According to a haulier who was involved in the fuel duty lobby the other week and whom I arranged to meet along with one of the Transport Ministers, between January and June 2007 the fuel bill for Les Knight Transport Ltd, which has a fleet of about 20 heavy goods vehicles, was £390,000. The bill for the same period this year was £484,000. That amounts to an increase of £94,000 so far this year. I asked how much of it the firm had been able to pass on to its customers. A fuel duty escalator is built into its contracts so that it can pass on some of the price, but so far it has only managed to get its customers to pay an extra £34,000. So far, £60,000 of extra cost has been imposed on the business in this year alone. No business could sustain that for long, and British hauliers will not be able to sustain it for long. I accept that that their social costs are lower, but we need to find a way of adjusting the balance on behalf of the haulage industry. Whether that is done through an essential user rebatewhich is what it is asking for, but which seems to me to be a rather complicated mechanismor a reduction in excise duty on heavy goods vehicles, we have to do something and do it fairly rapidly.
I have been arguing that we should re-open the case for the vignette. The hon. Member for Twickenham suggested that we should just charge people coming into the country, but that would be against EU law. We would have to have a simple vignette system that everyoneBritish hauliers as well as foreign hauliershas to buy. A foreign haulier would, of course, buy it at the day rate, and the British haulier would buy it at a discounted annual rate, but what is important is that the revenue from that system would be used to offset UK excise duty on heavy goods vehicles. That would be a perfectly legal system under EU law, and it would be zero-cost to the Treasury and provide a considerable competitive rebalancing for the heavy goods vehicle industry.
The Government were considering that idea. They decided not to look into it any further in the Budget, but that was before the current huge oil price rise. I suggest that one of the things my right hon. Friend the Chief Secretary could do is take that file out again and have another look at it with the eye of a politician, and see if it might provide her with the mechanism we need to make the UK HGV industry a bit more competitive.
John Howell (Henley) (Con): Thank you, Mr. Deputy Speaker, for giving me the opportunity to make my maiden speech. The pressure to make this speech at the earliest opportunity has come from some surprising sources. As I arrived here on my very first day, I was handed a telephone message from the local Oxfordshire press inquiring whether I had delivered it yet. Clearly, my predecessors departure to be Mayor of London has liberated acres of column inches in my local papers that now need to be filled.
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