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Session 2008 - 09
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Public Bill Committee Debates

Excise Duties (Surcharges or Rebates) (Hydrocarbon Oils etc.) (Revocation) Order 2008

The Committee consisted of the following Members:

Chairman: Sir Nicholas Winterton
Barlow, Ms Celia (Hove) (Lab)
Beresford, Sir Paul (Mole Valley) (Con)
Blizzard, Mr. Bob (Lord Commissioner of Her Majesty's Treasury)
Blunkett, Mr. David (Sheffield, Brightside) (Lab)
Browne, Mr. Jeremy (Taunton) (LD)
Dobbin, Jim (Heywood and Middleton) (Lab/Co-op)
Duddridge, James (Rochford and Southend, East) (Con)
Eagle, Angela (Exchequer Secretary to the Treasury)
Gibson, Dr. Ian (Norwich, North) (Lab)
Greening, Justine (Putney) (Con)
Jones, Lynne (Birmingham, Selly Oak) (Lab)
Michael, Alun (Cardiff, South and Penarth) (Lab/Co-op)
Pugh, Dr. John (Southport) (LD)
Strang, Dr. Gavin (Edinburgh, East) (Lab)
Stuart, Mr. Graham (Beverley and Holderness) (Con)
Walker, Mr. Charles (Broxbourne) (Con)
Gosia McBride, Committee Clerk
† attended the Committee

First Delegated Legislation Committee

Tuesday 13 January 2009

[Sir Nicholas Winterton in the Chair]

Excise Duties (Surcharges or Rebates) (Hydrocarbon Oils etc.) (Revocation) Order 2008

10.30 am
The Chairman: Before I ask the Clerk to read the title of the order, I welcome all Members back to the House after what I hope was a happy, enjoyable and restful Christmas recess. I enjoyed the recess, spending it mainly with my family. I am sure that that was the case for many members of the Committee.
10.31 am
The Exchequer Secretary to the Treasury (Angela Eagle): I beg to move,
That the Committee has considered the Excise Duties (Surcharges or Rebates) (Hydrocarbon Oils etc.) (Revocation) Order 2008 (S.I. 2008, No. 3018).
May I be the first to wish you—belatedly, Sir Nicholas—a happy new year? I am sure I will not be the last. I am glad that you enjoyed the break, as did I. It is always odd to come back with the year well under way and yet spend the first few days saying happy new year to those we have not seen since before the Christmas break. That goes to show that time is relative and that it moves in peculiar ways in this building.
The debate relates to two statutory instruments that adjusted the rate of duty on hydrocarbon oils from 1 December 2008. The changes were legislated for in the Finance Bill 2008, which stated that the main fuel duty rate was to increase by 2p per litre to 52.35p per litre. The duty on rebated oils was to increase in proportion to the main fuel duty increase, meaning that duty on rebated gas oil—more commonly known as red diesel—would rise by 0.38p per litre to 10.07p per litre and that the rebated fuel oil duty would rise by 0.37p per litre to 9.66p per litre.
The increase in duty on road fuel gases was such that the current differential between duty on petrol and on natural gas would be maintained, while reducing the differential between the main fuel duty and duty on other gases, including liquefied petroleum gas, by 1p per litre. That meant a rise in duty on natural gas of 2.9p per kg to 16.6p per kg and on other gases of 4.28p per kg to 20.77p per kg.
I shared the privilege of sitting on the Finance Bill Committee with hon. Members on both sides of this Committee, and I am sure that they will recall in great detail legislating for those duty changes. The changes were due to take effect from 1 October 2008 and form part of a series of pre-announced fuel duty increases up to 2010. Those are in line with the long-term Government policy of increasing fuel duty each year at least in line with inflation to reduce polluting emissions from fossil fuels and to fund essential public services.
The series of increases included the 2p per litre increase on 1 October 2007, which went ahead as planned; the 2p per litre increase planned for 2008; and further increases for 2009 and 2010. However, 2008 saw unusually tight conditions in global oil markets with crude prices doubling over the 12 months to July when they reached a real-terms record high of $146 per barrel. As a result, prices at the pump rose, peaking in July at 119.62p per litre for petrol and 132.98p per litre for diesel. In response to those unusually difficult conditions, the Chancellor announced that the 2p per litre increase planned for 2008 would be postponed. That decision was in response to difficult short-term conditions and was not a departure from long-term Government policy.
By 24 November 2008, when the pre-Budget report was announced, crude and pump prices had fallen significantly from their summer peaks. The Brent crude oil price closed at $53.93 per barrel, a fall of 63 per cent. from its July high. Average prices at the pump had fallen by more than 25p per litre to 92.79p per litre for petrol and 107.78p per litre for diesel, representing falls from the summer peak of 22 and 19 per cent. respectively. By the time of the pre-Budget report, the unusually difficult conditions of the summer no longer applied. It was therefore right for the Government to return to their long-term policy of increasing fuel duty, at least in line with inflation, each year. My right hon. Friend the Chancellor therefore announced that main fuel duty would increase by 2p on 1 December to 52.35p per litre.
In the pre-Budget report, the Chancellor announced that the standard rate of VAT, which applies to fuel, would be reduced generally in the economy by 2.5 per cent. to 15 per cent. Taking the fuel duty increase and the VAT cut together, private motorists would see little impact on the price of fuel at the pump. Since the pre-Budget report on 24 November 2008, crude and pump prices have continued to fall. Brent crude closed on 9 January at $44.42 a barrel, while yesterday, UK average petrol and diesel prices were £86.02 and £98.32 per litre respectively.
Mr. Charles Walker (Broxbourne) (Con): Will the Minister say why there is a discrepancy between the price of petrol and of diesel at the pumps? A number of my constituents have written to me, expressing their concern. Are the oil companies playing fair with their customers on this?
Angela Eagle: I am happy to comment for the hon. Gentleman on the differential between the price of petrol and of diesel. I, too, have received many such letters. Many people mistakenly believe that somehow there is a difference in tax treatment, which is leading to the price differential. There is not; it is a question of demand and bottlenecks in the supply for producing diesel—particularly after some of the technical changes that were required to make its particulate emissions less dangerous.
My understanding is that the industry is putting in investment to catch up on, and deal with, some of the bottlenecks, but the price differential caused by supply conditions is causing the differential at the pumps. I hope that the hon. Gentleman will now be able to enlighten his constituents who are understandably puzzled about the differences.
As I was saying, since the pre-Budget report, crude and pump prices have continued to fall and thus, since then, petrol prices have fallen by more than 6p per litre and diesel prices by more than 9p per litre. The pre-Budget report 2008 thus announced a return to the Government’s long-term policy of increasing fuel duty at least in line with inflation every year. In the face of unusually difficult conditions created by record-high world oil prices, the increase in fuel duty planned for 2008 was postponed in the summer. That showed that the Government would react responsibly to short-term difficulties posed to businesses and families across the UK. However, with crude oil prices having fallen by more than 60 per cent. from their summer peaks, it was right for the Government to return to their long-term policy set out in the pre-Budget report, and for the 2p per litre increase, which had been postponed, to be brought into effect on 1 December.
That increase will help to sustain public finances in the medium term and to support the Government’s environmental objectives. With the standard rate of VAT being reduced at the same time, private motorists should see little impact on fuel prices at the pump. I commend the order to the Committee.
10.39 am
Justine Greening (Putney) (Con): I, too, take this opportunity to wish everybody on the Committee a very happy new year: 2008 felt like a long year and many of us are interested to see how 2009 progresses as we move into it.
The order has its starting point very much in 2008. We are now seeing the final introduction of what had been a 2p rise in fuel duty, which was originally planned for March 2008. In many respects, the March 2008 saga of 2p on fuel duty typifies the problem of dither and delay that we have seen with the Government in recent years. I am concerned even today, because as I listened to the Minister just now, I could not help but notice that the papers she was reading from had “draft” stamped over them in very big letters.
The Chairman: An intervention of explanation is coming from the Minister.
Angela Eagle: This is indeed an intervention of explanation. It is rather irritating to me too. This is not a draft speech, but we do not waste paper in the Treasury.
The Chairman: I am sure that the Committee has taken that point.
Justine Greening: Thank you, Sir Nicholas. That is very helpful. I hope that the Government take the same attitude when papers with “confidential” stamped on them get into the public domain. I wonder whether that is saving paper too.
Clearly, this fuel duty rise represents one of the problems that the British public have seen with the Government. I think it would be helpful if I briefly set out the chronology of how we have reached this point. Coming up to the 2008 Budget, we faced a 2p rise in fuel duty. In March, the Government finally relented and acknowledged that it was not the right time to bring forward unaffordable fuel duty rises and we were told that the rise would be introduced in October. In July—within just a few months—we were told that the 2p fuel duty rise would not come forward in October. The Minister had reassessed it and it would be coming forward in March 2009. A few more months went by and we saw a further and final change, which was to bring forward the fuel duty rise as a consequential part of the failing VAT stimulus package, which passed through the House following inadequate debate at the end of last year.
Will the Minister confirm that this is the postponed March 2008 rise? Can we therefore expect continued fuel duty rises to be brought forward in a matter of weeks, in the forthcoming Budget this March? It is extremely difficult for business, the public and people who rely on their cars to plan their time and to budget when they have so little certainty about fuel duty rises. The past year demonstrates why the Government’s approach is simply unsustainable in the long term: it provides no certainty for businesses and it is impossible for them to plan. The Minister may be unable to tell us whether a further fuel duty rise is planned for March, although I hope she can, because that is the sort of certainty on tax that we all need from the Government at the moment.
The second issue here is the fact that the order is absolutely rooted in the VAT stimulus package, which the Government took through the House at the end of last year. As far as I know, they are the only Government to decide to reduce VAT to provide a fiscal stimulus to the economy. Any of us out shopping before and after Christmas will have seen the massive sales on the high street. I wonder how on earth the Government think that a 2.5 per cent. VAT reduction—
The Chairman: Order. I am loath to interrupt, but we are debating a specific order and the impact of a reduction in VAT on retail sales is not in any way relevant. As long as the hon. Lady relates her comments to the increase in excise duty, I am happy to allow them, but otherwise they are not relevant to the order.
Justine Greening: Thank you for your guidance, Sir Nicholas. This is absolutely related to the VAT stimulus package because, as the Minister set out, it was introduced as a consequential amendment to offset the reduction in VAT that would be reflected in fuel prices once that measure went through Parliament. Therefore, according to the Minister, it was absolutely offsetting that.
Angela Eagle: I would not like the hon. Lady to get the idea that those two things were related in that sense. Here, we have a pre-announced increase in fuel duty that was delayed because of the high and exceptionally volatile world oil prices, as I set out in my introductory remarks. When VAT came down as part of the pre-Budget report, we felt it right to reinstate the legislated-for policy of a 2p increase in the duty. We could talk about the VAT stimulus, but that would perhaps not be in order in this Committee. That general policy was part of the pre-Budget report; this measure is a reinstatement of a legislated-for policy. The hon. Lady would be wrong to relate the two and claim that somehow they were connected to each other. They were not.
Surely that shows the folly of the Government’s stimulus approach of which, irrespective of what they say, the fuel duty measure was part, because they have a borrow-and-spend strategy. The Government tell us that when times are good we can afford to borrow and spend, but when times are bad we cannot afford not to borrow and spend. That is an unsustainable strategy for managing the economy: we have a debt that is projected to reach £1 trillion over the coming years.
We will not divide the Committee today, but when we voted against the VAT stimulus, we made extremely clear our concerns about the package that the Government took through the House before Christmas.
10.48 am
Dr. John Pugh (Southport) (LD): I wish everyone a happy new year, notwithstanding the daily efforts of the national media to depress us.
There are three basic principles behind taxation and I think that everyone in the room agrees with them: to raise tax, protect the environment and support a sustainable economy. It is obvious that the priorities are differently weighed by different Governments or by the same Government at different times. However, given the recorded volatility of oil prices, the arrangements for fixing tax in this way seem entirely appropriate. We appear to have a yearly decision with the possibility of postponements and variation by up to 10 per cent.
One cannot argue about the structure or the process that we are undergoing, but one could argue about the Government’s particular judgment call at the particular time. However, one feels more than usually redundant because this statutory instrument was laid on 24 November, has been in force since 1 December and is being debated here on 13 January. So, we are debating a decision that was made in the bowels of the Treasury about three months ago. I am impressed by the Treasury’s confidence, and was amused to discover this statement in the explanatory notes:
“The impact on the public sector is negligible.”
That is followed by the statement:
“An Impact Assessment has not been produced”
on business, on the slightly paradoxical ground that that impact is also “negligible”. I do not know how one can assert that the impact is negligible if an impact assessment has not been conducted. Perhaps it is what the Minister mentioned—the VAT effect—that makes the Treasury confident that the impact on business will be relatively slight, if not non-existent.
The documents in front of us allude to, though do not significantly deal with, the duty on liquid fuels as opposed to fuel duty rates in respect of road fuel gas. I wonder whether the Minister might be tempted to say a little about that. Paragraph 4.6 of the explanatory notes says:
“A separate explanatory memorandum has been prepared for those regulations”.
I have not seen that explanatory memorandum, but in adjusting to duties of all kinds, people make choices—whether to buy a diesel or a petrol car, whether to convert their car to liquefied petroleum gas and so on. May I take advantage of the Minister’s presence and tempt her to say a little about where we go on the duty on petrol gas and whether it is still a viable option for people to consider that as a way to reduce overall costs? I will welcome any comment she makes.
This is an issue: £1,000 to convert a car to avoid petrol duty or the high cost of diesel is not an inconsiderable investment; it is a long-term investment for many people. People are not buying new cars at the moment. Converting an old car is a far more doubtful proposition than converting a new one, yet surely, if our environmental credentials are intact, we would wish to encourage that. Therefore, we need clear taxation indications that it will be beneficial to make that conversion.
10.52 am
Angela Eagle: I shall do my best to respond to the debate. The hon. Member for Putney talked about dither and delay—with respect to some changes that have been made and as the time has approached—over whether to put up fuel duty. I would not say that there has been dither and delay, and would argue with that statement strongly.
I believe, and concur with what the hon. Member for Southport essentially said, that the structure is such that announcements are made in pre-Budget reports and Budgets. Because of the volatility of the oil price—which, alas, is not something that national Governments can particularly control, as we saw in the summer—it makes sense to have flexibility in the system.
Therefore, although there is a broadly pre-announced approach to attempt to provide certainty in an uncertain environment, if unexpected things happen—for example, the oil price doubling to the highest real price we have seen in many years, causing a very large spike—it is right to have the flexibility to postpone what we intended, given that as we got closer to the relevant date, the conditions had become so different from those we had imagined when the decision was made. That is not dither and delay; it is responding to changes in real circumstances and expressing judgments closer to the time.
Such rigid decision making, which is attached to a formula that cannot shift in the way that volatile realities can, is much less effective than the current system. I agree with the hon. Gentleman that there cannot be any argument against making such judgments closer to the time.
The hon. Gentleman had a dig about the fact that although the statutory instrument came into force on 1 December last year, we are debating it in a wholly new year. Perhaps that adds some power to what I was saying about the peculiar nature of time in this building. However, I pray in aid the fact that we legislated for the measure and debated it at great length in the Finance Bill Committee Bill. He must remember that, as he was present, I think.
Parliament has considered, debated, voted on and passed the measure and it has merely been postponed. This, rather oddly, is a revocation order to revoke that postponement, so we are revoking a revocation. For anyone who is struggling with some of this, two negatives make a positive, as those of us who struggled with logic when studying philosophy at university will remember. Therefore, we are back where we were in the 2008 Budget. The matter has been properly debated and voted on in the House, and I hope that everybody is content with that explanation.
Dr. Pugh: It is very straightforward: converting a car to LPG is a big investment and people want a degree of fiscal certainty over a long period. There is a case against such certainty and for variation in taxation on petroleum, but with LPG the situation is different because of the necessary conversion costs that an individual might incur.
Angela Eagle: I understand the hon. Gentleman’s point. The policy of increasing fuel gas duty was set in 2003 in the alternative fuels framework, which concluded that the different environmental impacts of LPG and other road fuel gases required a higher rate of duty than natural gas. The 2008 pre-Budget report simply confirmed that the increases due to take place would do so on 1 September. However, we bear in mind all the issues raised and let me reassure him that we shall continue to do so. The framework in which we are operating is that set out in the 2003 alternative fuels framework and we have not heard the arguments for moving away from that framework. However, I take his point. It is one of the matters that we will consider when looking at the issue overall.
With those comments, I commend the order to the Committee.
Question put and agreed to.
10.59 am
Committee rose.

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