 House of Commons |
Session 2007 - 08 Publications on the internet General Committee Debates Finance Bill |
Finance Bill |
The Committee consisted of the following Members:Alan
Sandall, James Davies, Committee
Clerks
† attended the
Committee
Public Bill CommitteeThursday 15 May 2008(Afternoon)[Sir Nicholas Winterton in the Chair]Finance Bill(Except clauses 3, 5, 6, 15, 21, 49, 90 and 117 and new clauses amending section 74 of the Finance Act 2003)1
pm
The
Chairman:
I welcome Members back, following our
adjournment at 25 minutes past 10. For those who are interested, I am
advised by the Minister that there is no play at
Lords.
Hopefully, we will make some
fairly rapid progress, with co-operation across the Committee, because
certain Ministers and shadow Ministers might well have to be on the
Floor of the House for an important
debate.
Clause 13Rates
and rebates: increase from 1 October
2008
Question
proposed [this day], That the clause stand part of the
Bill.
Question again
proposed.
The
Chairman:
I remind the Committee that with this it will be
convenient to discuss new clause 4—Fuel duty
regulator—
‘In the HODA
1979 (c. 5) in section 6 (excise duty on hydrocarbon oil) there is
inserted after subsection
(1A)—
“(1AA) In
every Budget Statement and pre-Budget Report the Chancellor of the
Exchequer shall provide his forecast for the price of oil and set out
anticipated yield from fuel duty and VAT on fuel for that price and for
a range of prices up to 50 per cent. above his
forecast.
(1AB) In the 2008
pre-Budget Report the Chancellor of the Exchequer shall bring forward a
mechanism for—
(a) using
additional revenue from VAT on fuel above forecast to offset fuel duty
when the oil price rises above his forecast
level;
(b) providing specific
fuel duty reductions targeted at fuel sold in sparsely populated areas;
and
(c) providing specific fuel
duty reductions targeted at fuel sold to road haulage
operators;
and the Chancellor
of the Exchequer shall by order define “sparsely populated
areas” and “road haulage operators” for the
purposes of this
subsection.
(1AC) Whenever
international oil prices return to the level estimated by the forecast
made in accordance with subsection (1AA), the offset described in
subsection (1AB) (a) to (c) is suspended until the price rises again or
the forecast price is amended by the next Budget or pre-Budget
Report.”.’.
The
Exchequer Secretary to the Treasury (Angela Eagle):
Sir
Nicholas, I shall try to deal with new clause 4 and clause 13 in
responding to what I thought was an interesting and revealing debate.
The new clause, tabled by the hon. Member for Dundee, East, is in a
state of evolution, as he was honest enough to admit when speaking to
it. Finance Bills have a history of such new clauses, and I compliment
him on the welcome way in which he has evolved his. I hope to persuade
him, however, that although a fuel duty regulator might appear
superficially attractive—I share his concerns about the cost
implications, the pressures that high oil prices bring to bear on all
drivers and the clear issue with hauliers—unfortunately, his
approach, which he has been dutifully evolving over the years, has some
major flaws.
My right
hon. Friend the Chancellor demonstrated in the Budget that we are
sensitive to the issues of high nominal petrol costs. Again, the hon.
Gentleman was generous enough to point out that oil prices can be
incredibly volatile. Since 1997, when the Government first took office,
the price of a barrel of oil has continued to rise, but fuel duty has
fallen—in real, not nominal, terms. Hon. Members on both sides
of the Committee must bear in mind that there is no obvious connection
between the price of oil in the barrel—let alone at the
pumps—and the fuel duty level. To some extent, his idea for a
fuel duty regulator, which he has brought before the Committee, tends
to assume that there is such a connection.
Justine
Greening (Putney) (Con): I just wanted to correct the
Minister. Just before we adjourned after the morning sitting, she said
that I had supported the new clause, but in fact I said that we did
not. I said that we supported clause 13. I wanted to make that
absolutely clear, before she
continued.
Angela
Eagle:
I thank the hon. Lady for that
correction. In her remarks earlier, it sounded as if she was supporting
the new clause, which is why I asked her whether she supported the
concept of a fuel duty regulator. If that were so, it would be an
interesting development in Conservative policy. I now see, from her
intervention, that the Conservative party does not support the use of a
fuel duty regulator, and she and I may be able to agree on a reason for
that, as my remarks progress. There are some pretty difficult practical
and design issues with the idea set out in new clause
4.
“you can
see the very strong commitment to the environment and yes, green taxes
as a share of taxes do need to go up. That’s not necessarily
popular, but I think it’s
right.”
Can my hon. Friend
reconcile that with the position that the Opposition have taken
on—
The
Chairman:
Order. I do not want the Minister to respond to
that. We are not debating statements by the Leader of the Opposition,
or any other member of the Opposition, for that matter. We are debating
the Bill, clause stand part and new clause
4.
Angela
Eagle:
Thank you, Sir Nicholas, for
saving me from going wildly out of order. I have already been asked to
justify certain statements by Sir Richard Branson,
and I cannot possibly do so for comments by the right hon. Member for
Witney (Mr. Cameron); I would not propose to do
so.
It is worth putting into
perspective the current duty rates on oil in the UK. As I was saying
earlier, the graph that is available demonstrates that those are now 16
per cent. lower in real terms than they were in 1999, when the Prime
Minister abolished the fuel duty escalator. The current fuel duty rate
is 50.35p per litre. Had fuel duty gone up in line with inflation since
1999, the rate would be 61p per litre, and if it had gone up in line
with the 3 per cent. escalator that we inherited from the Opposition,
as it did prior to 1999, it would now be 79p per litre—close to
30p per litre more than it is
now.
The overall cost
of motoring has also fallen by 13 per cent. in real terms since
1999. There is a difference, in debate on statistics, between the real
and nominal prices of motoring and fuel. The high nominal prices at the
moment are clearly being felt in the pockets of the constituents of the
hon. Member for Dundee, East, and he is doing the best he can for them,
by way of his new clause, in response to that. We are all aware of the
pressures and difficulties that the current high nominal oil prices
present to our constituents.
It is important to consider the
broader taxation picture. It is true that fuel duty rates are lower in
other European Union countries, but our overall GDP to tax ratio is
below the EU 19 average and other countries with lower fuel duty rates,
such as Italy, France and Austria often have higher overall tax
burdens, so there is an element of swings and roundabouts. EU
regulations mean that the UK must charge VAT on fuel. However, the UK
has one of the lowest VAT rates of any EU country.
To come to the
nub of the new clause, I want to refer to the intervention by my hon.
Friend the Member for South Derbyshire, which was so completely to the
point that it should form the cornerstone of any response to the
provision. I compliment him on the astuteness of what he said. He
questioned the concept of the existence of a VAT windfall, for exactly
the right reasons. The new clause assumes a VAT windfall, caused by
high fuel duty prices, that increases receipts to the Treasury. That is
rarely the case, as my hon. Friend pointed out. As fuel duty is a fixed
rate, reduced fuel sales lead to reduced fuel duty receipts. In
addition, the so-called VAT windfall does not materialise. In the
context of the wider economy, people tend to have a fixed amount to
spend. Therefore, if they have to spend more on one commodity they tend
to spend less on others, leaving the overall level of VAT receipts
largely unchanged. I might even say that the VAT windfall from higher
nominal fuel prices is a myth. Part of the basis of the new clause is
that that windfall exists and can be recycled, to give support to
hauliers and those particularly affected by high nominal fuel prices.
It is also important to remember that VAT-registered businesses are
liable to reclaim the VAT that they incur when buying fuel for business
purposes, so the VAT paid at the pump should make no difference to
their overall tax burden.
Reducing duty
would not guarantee a reduction in the fuel price at the pump. My hon.
Friend the Member for Broxtowe pointed out that there are other reasons
for the record levels of oil prices, none of which are to do with
levels of fuel duty or taxation policy in the UK. He is right that the
only way to deal with that is globally. My right hon. Friends the Prime
Minister and the Chancellor are attempting to do that in the G7 and
other international bodies, where work is going on to see whether the
high oil prices caused by different global events can be reduced. Since
those wider VAT effects can be taken into account, the lost fuel duty
revenues are likely to outweigh any extra VAT, given that there is no
windfall. As a result, the new clause, although it is presented as
revenue neutral, would be likely to lead to significant revenue losses
for the Exchequer. It would also lead to massive volatility in
receipts.
The second
part of the new clause would introduce a fuel duty reduction for
sparsely populated areas. The Government recognise that fuel prices
have risen in recent months to high nominal rates, and that people who
have fewer alternatives to driving are particularly affected. However,
while fuel prices have increased greatly over the past year, duty rates
have not risen by the same amount. It is not feasible or appropriate to
set a different duty rate for rural areas because it is unclear how
those sparsely populated areas would be defined. There is agreement on
that between the Government and the main Opposition party. The point
was made when we debated the Bill in the Committee of the whole House.
It is a difficult
issue.
It
is recognised that fuel prices are higher in some areas, for example
the Western Isles and the Shetland Isles, but in other parts of the
highlands they are closer to the national average. Scotland has lower
average petrol prices than the rest of the UK. There are problems in
particular areas, but it would be difficult to define and ring-fence
such an area for the purposes sought by the new clause. Creating an
exemption would be likely to involve drawing a line between areas with
similar prices and therefore creating an incentive—rather like
the Irish border incentive—for people to cross the border and
fill up in lower duty areas. That would distort the market. It would
also be difficult to ensure compliance, and the potential for fraud
should be
obvious.
1.15
pm
Mr.
Jeremy Browne (Taunton) (LD): The point that the Exchequer
Secretary made about cross-border shopping between Northern Ireland and
the Republic of Ireland may apply less in this case, because the cost
of going to a sparsely populated area to fill up the car would tend to
mitigate against the incentive of cheaper
fuel.
Angela
Eagle:
The experience of having
differential duties so close to each other is the opposite of what the
hon. Gentleman suggests. Perhaps he is being slightly naïve.
Even if it were feasible to ring-fence and define areas in an
appropriate way, we would need to receive a derogation from the EU
energy-using products directive. There is certainly no guarantee that
we would be successful. France holds a derogation, but it is not
directly comparable, because in France the authority to set excise
duties has been devolved to regional government.
The final part of the new clause
would introduce a fuel duty regulator solely for road haulage
operators. The Government recognise the road haulage industry’s
concerns over the current high nominal cost of fuel and we understand
the pressure that that puts on the industry. But requests for reduced
duty rates for road haulage operators are often associated with the
relative competitiveness of the industry compared with foreign
operators which can fill up their fleet from abroad, due to lower fuel
prices in other EU member states.
Studies, including one by the
road haulage industry task group, have shown that duty differentials in
many cases are offset by other costs such as lower labour and
employment costs. Overall, operating costs in the UK are quite similar
to those in countries such as Germany, Italy, Belgium and the
Netherlands. A scheme such as the hon. Member for Dundee, East has
suggested would require the introduction of an administrative system
with potentially high costs. Any system would create significant
compliance and fraud risks and consideration must be given to the
incentive for fuel efficiency that the receipt of the reduced rate
would bring, again a point admirably brought out by my hon. Friend the
Member for
Broxtowe.
The
Government have continued to support the industry through other policy
measures which are more achievable such as freezes to HGV excise duty
rates, the reduced pollution certificate scheme and significant funding
for enforcement to deal with some of the foreign competition points. I
know that the road haulage industry is very supportive of the
significant extra amounts of money that the Government have been able
to bring to bear on enforcement.
While the
Government accept that rising fuel prices are having an impact on
families, we do not believe that the new clause provides a workable or
sensible answer. We will continue to take steps to reduce higher oil
prices through the international action that I mentioned earlier,
working through the G7, to stabilise the volatility of the oil market.
Those factors were taken into account by the Chancellor when we made
the decision, set out in clause 13, to defer the planned fuel duty
increase at the Budget, and any further steps at this stage would be
counter-productive. While asking the Committee to agree that the clause
should stand part of the Bill, I ask the hon. Gentleman not to press
his new clause to a vote.
Stewart
Hosie:
Before we adjourned, the hon. Member for Broxtowe
made a number of points. He said that prices can rise and spike because
of political instability. One of the purposes of the new clause is to
smooth out those spikes. He also asked what would happen if oil prices
fell. Given that most of his hon. Friends are talking about peak oil
and the industry is talking about $150 to $200 a barrel, that should be
less of a concern. However, this is not about tempering the way the
market rises in general, but about moving the spikes that cause
particular
difficulties.
The
Minister said that there was no obvious connection between the barrel
price and the price at the pump. That is absolutely correct. That is
why part of the new clause calls for a forecast of the fuel duty and
VAT yield. I have used the barrel price as a trigger
point. That might need to be finessed and I will come back to that. She
also said that she shared the concerns, particularly those of hauliers.
I welcome that. In her various criticisms of the new clause, she said
that an expensive administrative system would have to be introduced if
we were to deal specifically with hauliers. As we have the licensing
scheme—the standard, the restricted and the standard
international licence—and one cannot be a haulier without a
licence, I suspect that the cost of an administrative scheme for
hauliers might be rather less than she would expect. The question would
be: how much of a rebate would be calculated, and on what basis? Fining
the haulier and paying that rebate back might be rather
straightforward.
I
have heard the comments from the various parties and from the
Ministers. I recognise that implementing the measure generally might be
tricky and that implementing it in remote rural areas, although it is
vital, does have its difficulties. Although I may wish to return to the
issues in a more refined form in specific relation to hauliers at a
later time, I beg to ask leave to withdraw the
amendment.
The
Chairman:
The hon. Gentleman does not have to withdraw the
new clause, because it was merely being discussed with the stand part
debate. Of course, that does not in any way prevent him from seeking to
get a new clause or another amendment taken, and hopefully selected, on
Report.
Question
put and agreed
to.
Clause 13
ordered to stand part
of the
Bill
.
|
| |
| ©Parliamentary copyright 2008 | Prepared 16 May 2008 |