Examination of Witness (Questions 200-219)|
3 JULY 2008
Q200 Mrs Ellman: The price of oil
has now reached over $145 per barrel, petrol is 118.9p per litre
and diesel, the second-highest in Europe, is 132.3p per litre.
What specific work have you commissioned to look at the impact
of these ever-rising prices on the economy and on businesses?
Mr Brown: Well, we have not only
looked at the impact, but we have, for the time being, frozen
Q201 Mrs Ellman: No, no, I am asking
you what work have you commissioned to look at the impact of this
on businesses and on the economy?
Mr Brown: Well, we are looking
at that everyday. When you look at the effect that the price of
oil has on other consumer spending, when you look at the effect
that the price of gas and electricity has on the household bill
and then of course when you look at the effect it has on industry
generally, these are studies that we are doing everyday, and rightly
so, but I was answering about what we have actually tried to do
to alleviate some of the problems. We have frozen petrol duty
most years since 2000 and we froze it in the Budget and, at the
Q202 Mrs Ellman: No, I want to know
where you are identifying the specific problems that have arisen
from this situation and then how you are addressing them. If you
had to look at the specific areas, not what you have done in the
past or what you have not done in the past, where are the problems
Mr Brown: But, if you are asking
me about the source of these problems, it is essentially that
demand exceeds supply. That is the essential problem that has
got to be dealt with in a rising population and of course the
rising prosperity of some people in different parts of the world,
like Asia. If demand exceeds supply, and it is likely to exceed
supply for years to come, then people will expect the oil price
Q203 Mrs Ellman: No, what I want
you to answer, Prime Minister, is: where are the specific problems
in the economy here now, which particular groups of people are
being affected the most and what are you going to do about it?
Mr Brown: Well, obviously those
people, households, who are on the lowest incomes are hit most
when food and energy are a very high proportion of the money that
they have to spend. That is why we have taken action with the
Winter Allowance to raise it yet again for elderly people and
that is why I was referring to the deal that we have done with
the utility companies, that they will give more help to low-income
households, especially those who are paying higher costs for their
energy than many other people because of the way that they consume
energy, and we are always determined to do what we can to help
those who might be people who suffer from fuel poverty.
Q204 Mrs Ellman: So this is something
you are looking at all the time?
Mr Brown: Indeed, and will continue
to do so and, if we can take measures that will help people cut
their energy bills by using energy more efficiently or finding
a way that we can help them cut the consumption of energy, we
will do so.
Q205 Mrs Ellman: One of the key questions
for the moment of course is whether you are going to increase
fuel tax duty, as you have said you will. Now, the Treasury are
saying that the matter will be considered in the autumn and the
decision will be taken based on economic and social factors. What
are those factors?
Mr Brown: Well, I think exactly
the same factors that have led us to previous decisions. You have
got to be conscious of what is happening to the oil price itself,
what then is the effect on the cost of diesel and petrol and the
impact that that is going to have on the economy as a whole. I
think you will find in most years since 2000 that the duty has
actually been frozen.
Q206 Mrs Ellman: In view of what
you know now, are you going to increase fuel duty or is it better
that you say now that you are not going to?
Mr Brown: I can say now that that
is a decision for the Chancellor and he will make his decision
in due course.
Q207 Mrs Ellman: Are you seriously
saying, Prime Minister, that the Chancellor will take that decision
in isolation from the Prime Minister?
Mr Brown: Not at all, but the
Chancellor will take the decision looking at all these factors
that I have just told you are borne in mind, and I think it is
right, having frozen duty in April, that he has time to review
the situation and then make his announcement before the time at
which duty will go up.
Q208 Mrs Ellman: Based on what you
know now, will you be putting it that it should be increased?
Mr Brown: I am not going to make
a forecast, but it is clearly a matter that will be looked at
very, very carefully over the next few weeks.
Q209 Mrs Ellman: The Government have
said that the policy on fuel taxes is to do with addressing the
external costs of pollution and to fund public services. Is that
still the Government's policy?
Mr Brown: One of the problems
about the whole energy market around the world is the subsidies
in China, Asia and in the oil-producing countries, so you have
a very unbalanced market where people can buy oil without knowing
the real cost of it economically. We also have to take into account
the cost to the environment and that is one of the reasons why
successive governments have wanted to look at the cost of fuel
in relation to its effect on the environment.
Q210 Mrs Ellman: Yes, but is what
you said at the time of the Budget, that fuel taxes are to be
based on the external costs of pollution and to fund public services,
still government policy in the light of current developments and
current public concern?
Mr Brown: Well, of course these
are some of the issues that will be taken into account when the
decision is made and it is right to look at the effect of oil
consumption on pollution and it is also right to look at the balance
of taxes as they affect our ability to provide public services.
Q211 Mrs Ellman: One of the other
concerns is to do with the increasing numbers of Continental vehicles,
haulage vehicles, coming into the UK and, according to the Freight
Transport Association, the costs of foreign lorries working in
the UK are actually 10 to 15 per cent less than UK-based operators
working in the UK. Now, decisions have been taken in Europe which
mean there will be increasing numbers of Continental hauliers
working in this country. In view of that, why did the Government
state that they were not going to go ahead with the vignette scheme
so that those hauliers could help to pay for the costs of using
the roads here?
Mr Brown: The problem about that
scheme is that the capital costs of introducing the new proposals
were so great that it would have cost us more to introduce the
proposals than the amount of money it raised. As far as Continental
hauliers are concerned, I think you have also got to look at the
fact that there are higher VAT rates in these countries, there
are higher social insurance payments in these countries and there
are higher taxes in these countries, so I think you have got to
balance that off against the costs of fuel.
Q212 Mrs Ellman: So, when the Freight
Transport Association make this statement, are you saying that
that is wrong?
Mr Brown: We have had lengthy
discussions over time and there has been previously a transport
forum when these issues are looked at and I would very much like
for the Department for Transport to have talks with those people
concerned about the freight industry and hauliers generally, but
I think you will find that the Continental costs of operating,
particularly from many of the countries from which they come,
are, in VAT, social insurance and general taxation, higher than
they are in Britain and that is balanced off against the costs
Q213 Mrs Ellman: When you say that
the study that the Department for Transport commissioned on introducing
the vignette scheme in relation to hauliers would cost more than
the amount of money it would save, over what timescale?
Mr Brown: Well, it would take
a very long time for it to pay back the costs of the initial investment
Q214 Mrs Ellman: How long?
Mr Brown: Well, I cannot remember
the exact details. I dealt with that when I was in the Treasury
about two years ago, if I remember rightly, and I am very happy
to send the Committee the figures, but it was a very expensive
capital cost to introduce the scheme in the first place.
Q215 Mrs Ellman: But, in view of the
current situation and the current disquiet, do you not feel that
is something you should revisit?
Mr Brown: Well, it is obviously
something we would continue to look at, but I think we have got
to be aware of the very big costs of introducing the scheme in
the first place.
Q216 Mrs Ellman: But do you not think
you should look at the benefits and at the anger that there is
now in the absence of a scheme or an equivalent and, if you are
not going to have such a scheme, why is there not something else?
Mr Brown: Well, I think there
has been discussion on other possibilities and I do say that the
debate and the dialogue between the freight industry, the hauliers
and the Government about these issues should continue, and I would
be very happy to make sure that it is expedited.
Q217 Michael Connarty: One thing
which has not been covered, Prime Minister, when I was at the
last meeting with members of the UK oil and gas industry, their
chief executive said that "the Prime Minister and Chancellor
are sitting on a big, fat windfall from production tax from the
North Sea". Why is it not going to be used to relieve some
of the problems that you have been discussing in the past 30 minutes?
Mr Brown: I was trying to explain
yesterday in the House of Commons that essentially, when you have
higher costs for oil, it is true that, if you have North Sea production
delivering oil and you tax it, there is additional revenue, although
production in the North Sea has not been increasing. However,
that is offset, when oil prices are high, by the fact that people
spend less on other things and, therefore, VAT revenues go down,
people spend less on property as a result of some of the things
that are happening in the economy and your stamp duty receipts
go down and companies tend, with a few exceptions, to make less
profits and, therefore, your corporate tax receipts go down, so
the effect of a rise in the price of oil is that it affects the
rest of the economy in such a way that you usually have lower
receipts overall than you have higher receipts and that is the
impact of high oil prices.
Malcolm Bruce: Thank you, Prime Minister.
You can see that oil and food prices are not going to go away
and your political challenges will intensify. Thank you.
Chairman: We now move on to managing
the economic slow-down. John McFall?
Q218 John McFall: On the theme of
oil, Prime Minister, can I add that it is reported that both presidential
candidates in the US say that action is needed to rein in speculators
in the oil market. If so, what action are you taking? I would
remind you of what Joe Lieberman said when he said that they are
a "significant contributing factor to the economic distress
now being felt by American consumers every time they stand in
the grocery store checkout line or pay for a fill-up at the gas
pump". Lieberman is very close to McCain, and Obama has also
made these points. What are you going to do about the speculators?
Mr Brown: Well, we are looking
at this, the Treasury is looking at this and the Financial Services
Authority is looking at this, just as the US authorities are looking
at it and the European Union, so, if there were any market manipulation,
it would be exposed and we would take action.
Q219 John McFall: But, Chancellor[sic],
the Financial Services Authority are not looking at it yet. I
had Lord Adair Turner before my Committee yesterday, the incoming
Chairman, and I pointed out to him that the Americans are saying
at the moment that there is a `London loophole' in oil futures
market trading and artificially boosted prices, and indeed the
Commodity Futures Trading Commission, the chief futures regulator,
imposed limits on the US last week on the size of speculative
positions that could be taken on the London futures market, so
there is a real problem here. I am going to have an inquiry in
a couple of weeks, one session, on that, but we really need some
action because it was reported that there is $260 billion of speculative
money in the oil futures market.
Mr Brown: I have looked at that,
I know what you are talking about and there are these inquiries
going on, but I would say to you that, in an oil market where
demand exceeds supply today and tomorrow and people expect it
to exceed supply next year and for a few years afterwards, that
is the primary reason why the price is going up. We have got to
have measures that both make more efficient the use of oil itself
so that you can actually reduce consumption where it is possible
to do so and increase supply from other sources by reducing the
dependence on oil, so you cannot put down to speculation the whole
of the problem that we are dealing with at the moment; there is
greater demand than there is supply and that is why we have got
to take economic action to deal with that.
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