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 youbelatedly, Sir Nicholasa
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
oilmore commonly known as red dieselwould 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 dieselparticularly 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
Governments 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 Governments 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 Julywithin just
a few monthswe 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 Governments
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.
Justine
Greening: I simply do not accept what the Minister has
just said. She seems to contradict her statement of only a few minutes
ago, which absolutely
related the two measures and said that the rise was introduced to
compensate for the reduction that motorists would see in petrol prices
as a result of the VAT change. The two measures are therefore
inextricably linked. She is right to say that there is a difference
between themthe VAT reduction will be temporary whereas the
fuel duty rise will be permanent. Motorists may face not just the
double whammy of a temporary VAT cut and permanent fuel duty rises, but
there may be further VAT rises down the track, which they will have to
pay in the coming
years.
Surely
that shows the folly of the Governments 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 Governments 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
Treasurys 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 mentionedthe VAT
effectthat makes the Treasury confident that the impact on
business will be relatively slight, if not
non-existent.
Given
the volatility of oil price and supply, it would be more honest to say
that the impact is unpredictable. I do not think that when
local governments try to set
the council tax they regard all these changes as negligible. Some of the
effects will depend on what choices people can make. Whenever the
Government change a taxation regime, people can make different choices
to take advantage of it. They can use less or more petrol, for example.
The hon. Member for Broxbourne raised the issue of the differential
between diesel and petrol, which obviously represents a choice for some
people.
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 choiceswhether 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 Ministers 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 delaywith
respect to some changes that have been made and as the time has
approachedover 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
pricewhich, alas, is not something that national Governments
can particularly control, as we saw in the summerit 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
happenfor example, the oil price doubling to the highest real
price we have seen in many years, causing a very large spikeit
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.
Like
the hon. Member for Southport, the vast majority of people believe that
that is a sensible way of going about things. The policy of the main
Opposition party
is to have a fuel duty stabiliser, which would take away that
discretion. It says that there is a direct link between oil prices and
prices in duty charged at the pump. That pre-announced policy, which
got nice headlines when it was announced, would have meant duty and
petrol prices having to go up by 10p a litre a couple of days before
Christmas. That would have required an extra £7 to fill up a
Mondeo, for
example.
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.
The hon.
Gentleman asked about LPG. The change that we are debating shifts all
duties up proportionately.
That does not disadvantage LPG, although I surmise from the tone of his
remarks that he would prefer LPG to be advantaged. We always bear that
matter in mind when looking at how to legislate on such
duties.
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. Gentlemans 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.