House of Commons portcullis
House of Commons
Session 2007 - 08
Publications on the internet
General Committee Debates
Finance Bill

Finance Bill

The Committee consisted of the following Members:

Chairmen: Frank Cook, Mr. Jim Hood, † Sir Nicholas Winterton
Atkins, Charlotte (Staffordshire, Moorlands) (Lab)
Blackman-Woods, Dr. Roberta (City of Durham) (Lab)
Blizzard, Mr. Bob (Waveney) (Lab)
Bone, Mr. Peter (Wellingborough) (Con)
Breed, Mr. Colin (South-East Cornwall) (LD)
Browne, Mr. Jeremy (Taunton) (LD)
Cable, Dr. Vincent (Twickenham) (LD)
Chapman, Ben (Wirral, South) (Lab)
Eagle, Angela (Exchequer Secretary to the Treasury)
Efford, Clive (Eltham) (Lab)
Field, Mr. Mark (Cities of London and Westminster) (Con)
Gauke, Mr. David (South-West Hertfordshire) (Con)
Greening, Justine (Putney) (Con)
Hall, Patrick (Bedford) (Lab)
Hammond, Mr. Philip (Runnymede and Weybridge) (Con)
Hands, Mr. Greg (Hammersmith and Fulham) (Con)
Hesford, Stephen (Wirral, West) (Lab)
Hoban, Mr. Mark (Fareham) (Con)
Hosie, Stewart (Dundee, East) (SNP)
Joyce, Mr. Eric (Falkirk) (Lab)
Kennedy, Jane (Financial Secretary to the Treasury)
Morden, Jessica (Newport, East) (Lab)
Newmark, Mr. Brooks (Braintree) (Con)
Palmer, Dr. Nick (Broxtowe) (Lab)
Penrose, John (Weston-super-Mare) (Con)
Pound, Stephen (Ealing, North) (Lab)
Pugh, Dr. John (Southport) (LD)
Sharma, Mr. Virendra (Ealing, Southall) (Lab)
Simon, Mr. Siôn (Birmingham, Erdington) (Lab)
Thornberry, Emily (Islington, South and Finsbury) (Lab)
Todd, Mr. Mark (South Derbyshire) (Lab)
Ussher, Kitty (Economic Secretary to the Treasury)
Viggers, Peter (Gosport) (Con)
Wright, David (Telford) (Lab)
Alan Sandall, James Davies, Committee Clerks
† attended the Committee

Public Bill Committee

Thursday 15 May 2008


[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.
Stewart Hosie (Dundee, East) (SNP): What Lords?
The Chairman: Cricket, I think.
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 13

Rates 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.
Clive Efford (Eltham) (Lab): The Leader of the Opposition said on 7 October that
“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.
The Chairman: I am grateful.
Angela Eagle: My pleasure.
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.
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 .
Contents Continue
House of Commons 
home page Parliament home page House of 
Lords home page search page enquiries ordering index

©Parliamentary copyright 2008
Prepared 16 May 2008