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Unfortunately—and this is the twist—petrol prices started to fall rather dramatically just as the Conservatives chained themselves to their policy. I am again indebted to the research done by my hon. Friend the Member for Argyll and Bute, who showed that the price of a litre of unleaded petrol had fallen, according to the AA website, to an average of 90.6p by March 2009. A fall of 16.2p since that year’s Budget was dramatic enough, but the
fall from the peak of the market was close to 30p. That peak roughly coincided with the period when the Tories were championing the fair fuel stabiliser most energetically in this House.
What would be the impact on motoring if amendment 11 were agreed to? I have done a calculation, and I am afraid to say—this will come as a shock to hon. Members across the Committee—that the amendment would impose a crippling rise in duty on every motorist in the country.
The Conservatives may have keen environmental reasons for wanting to increase petrol prices so markedly but, if they do, I do not understand why they should be so coy about them. I hope that the hon. Member for South-West Hertfordshire will tell us why his party is not selling the policy with vigour, because I am about to explain what its impact would be.
As I said, at the time of last year’s Budget, a litre of unleaded petrol cost 106.8p, but that had fallen to 90.6p by March 2009. If amendment 11 had been in operation at that time, it would have brought about an 8.1p increase in fuel duty. To be fair, the Government raised fuel duty by 2p in December 2008 and by a further 1.84p in April 2009, so it seems only reasonable to take those rises away from the figure that would otherwise form the basis of the calculation. If a provision equivalent to amendment 11 had been passed last year, motorists would have had to pay an extra 4.5p, approximately, for a litre of unleaded petrol over and above what they in fact have to pay at the pump at present.
That would have been the impact of the Conservative amendment. One could call it smoothing out the bumps, or putting up the price of petrol for motorists across the country. The Scottish National party has a variant on that, and it is perfectly honourable for both parties to take that approach, but they should be explicit about their intentions.
Mr. Mike Weir (Angus) (SNP): My hon. Friend the Member for Dundee, East (Stewart Hosie) made it clear that the object of the exercise was to get rid of spikes in prices. Does the hon. Gentleman understand how the haulage industry works? The fact that hauliers use long-term fuel contracts that cannot reflect price spikes has caused many companies, especially those in rural areas, to run into difficulties. The hon. Gentleman mentioned food stabilisers, but in Scottish rural areas—such as my constituency or the areas represented by the hon. Members for Argyll and Bute (Mr. Reid) or for West Aberdeenshire and Kincardine (Sir Robert Smith)—everything comes by road because there is no alternative. As a result, fuel price rises feed through to ordinary goods, hitting shops, pubs and every small business in towns and villages throughout our constituencies. Stabilisation will get rid of the massive spikes in fuel prices, and the difficulties associated with them.
Mr. Browne:
I completely accept the hon. Gentleman’s point on the haulage industry and the costs added to other goods, but my point is that the stabiliser does not just smooth out the spikes. That is what is so disingenuous about the claims made for amendments 13 and 11. If he had intervened to say, “The measure will smooth out the spikes but, to be honest, we—the SNP—will tell hauliers that, if there is a drop in prices, we will require them to pay more than the market rate,” I would understand it. That would be a perfectly noble and fair policy—it might even be revenue neutral. However, the Conservatives
and the SNP cannot argue one side of the equation and not the other—well, they can, but not in a way that is intellectually compelling.
For a party such as the Conservatives, who, when they are addressing business audiences, claim that they believe in free market economics, it is not intellectually consistent to say in the House of Commons that free markets are far too “haphazard” and, in fact, Government know best. That is intellectually dishonest. It is honourable to tell the electorate the consequence of policy, and the consequence if the amendments are made today will be that motorists pay more for their driving. By our calculations, they will pay approximately 4.5p per litre more, and that—
Stewart Hosie: Will the hon. Gentleman give way?
Mr. Browne: I am bringing my remarks to a conclusion.
That would have a serious impact on motorists. It is only reasonable that the parties point that out in this Committee and to our constituents.
Angela Eagle: We have had a most illuminating debate. I shall add to the questions that have been well put by the hon. Member for Taunton (Mr. Browne) about the other side of the Conservative policy, which has not been the subject of press releases or announced with all the fanfare to which the original proposal was treated, when it was calculated that a 5p cut in fuel duty would be the result. I wonder why we do not see similar press releases when, as oil prices fall, the policy would result in increases in duty. I have seen no press release boasting about that, or front-page newspaper coverage of how the Conservatives would put fuel duty up—by 4.5p, if their so-called fuel duty stabiliser is applied to the current oil price.
I have to acknowledge the persistence of the hon. Member for Dundee, East (Stewart Hosie), who has been raising this matter since long before I arrived on the Treasury team as Exchequer Secretary—and he has the Hansards to prove it. We certainly congratulate him on his persistence. The Conservatives were latecomers to the party—quite late, given that they voted against the hon. Gentleman’s amendment to the same effect to last year’s Finance Bill. They were converted, perhaps on the road to Damascus, but certainly on the way to Report stage, when the mathematics looked good. They produced their consultation document, but since then, everything has gone terribly quiet. The Conservative consultation closed in December, but no consultation summary has been produced and no further announcements have been made.
Mr. Jeremy Browne: Does the Minister agree with my observation that the moral of the story for Opposition parties is that they cannot be governed solely by the need to put out good press releases? They must also come up with intellectually robust policies, which would work in practice and in office.
Angela Eagle:
I could not agree more with the hon. Gentleman. When the press release looked good, it was generalised into a policy, which featured in Report stage of last year’s Finance Bill. That was followed by a consultation, but then—funnily—everything went quiet because the oil price started to plummet, which the
Conservatives were not expecting. With prices going only in one direction—down—their arithmetic looked rather difficult. It is interesting to note that this year, unlike last year, we have an amendment that asks us to produce the information needed to justify the Opposition’s policy. Presumably, the Conservatives’ consultation paper has come up with some of this, although we have not been allowed to see the results and we have had no further announcements even on how this policy has evolved, if I may put it that way, in the interim as the oil price continues to plummet.
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The fact that the oil price has done something unexpected—something that perhaps could not have been predicted at the height of the spike last year—shows precisely the problem with seeking to take the volatility out of what is, after all, a commodity that is traded in a completely free market and has notorious price fluctuations. They are always very difficult to predict with any degree of certainty. Oil prices can be affected by sudden events—weather events, political instability in a particular area and a whole range of other things. It is very difficult to stabilise something so volatile.
Mr. Jeremy Browne: I am grateful to the Minister for her brilliant lecture in free market economics, which I am sure will be beneficial to the Conservative Front-Bench team. Is it not also important to acknowledge that, at the time it happens, it is hard to know whether one is dealing with a spike or a broader trend that may or may not come to represent a spike retrospectively? We keep hearing about spikes, but at the time, one does not know whether it is really a spike or part of a long-term trend.
Angela Eagle: That is right. I dare say that even Nostradamus could not tell whether a spike was a spike or part of an ongoing upward or downward trend.
That brings us on to important issues about how on earth a baseline could be set and what behavioural effects it would produce. I want to go into some detail here, as these issues keep coming back and many of the practical difficulties with such proposals are skated over by those who make them as if they were really not a problem. I submit that they are.
Before I do so, however, let me say on free market economics that there are very few even socialist theorists who would suggest that commodity prices were somehow controllable—certainly not on the global level—as the Tory Front-Bench team now seems to want to suggest. I particularly enjoyed hearing the observations of the hon. Member for Taunton about the range of stabilisers that might be forthcoming if this particular approach to world commodities were to catch on.
Amendments 11 and 13 are designed to make provision for a new fuel stabiliser or regulator mechanism that would reduce the main fuel duty rate when international oil prices exceed their forecast levels. One has to think about what those forecast levels would actually mean in this context. In amendment 13, the hon. Member for Dundee, East seeks to establish a system directly, while in amendment 11, the Conservative Opposition have suddenly become much more coy than they were last year: they ask us only to prepare a report, rather than having the courage of their convictions in the consultation
paper and actually tabling a specific amendment to the Finance Bill. We have not seen such an amendment, so I detect a retreat from the direct implementation of their fuel duty stabiliser policy as it was announced last year. It has now become a meek request for us to prepare a report rather than being a direct amendment to the Finance Bill.
Both the amendments argue that such a mechanism would stabilise fuel prices at the pump by offsetting the impact of oil price fluctuations, but the mechanism is based on the incorrect premise that the Government receive a revenue windfall from high crude oil prices, which can be used to make up the difference in Exchequer revenues as fuel duty revenues fall. In fact, such a mechanism would destabilise the public finances—the opposite of the intended effect—by producing wild swings in duty rates, and pose significant administrative problems to both the Government and fuel producers.
Stewart Hosie: How can the Government determining to spend some of the revenue yield have any impact whatever on fuel producers? The argument is wholly spurious. The proposals have no bearing on fuel producers whatever.
Angela Eagle: First, I will deal with the point about the so-called windfalls, which do not exist. Secondly, the hon. Gentleman’s mechanism is about VAT, but the other mechanisms under discussion are, as far as we can tell, about the income we purportedly get from North sea oil when prices rise.
Mr. Gauke: May I read to the hon. Lady paragraph C.46 from the Red Book? It says:
“The surge in oil prices up to mid-2008 is reflected in North Sea revenues of £12.9 billion in 2008-09, up 66 per cent on the previous year.”
“North Sea revenues are expected to almost halve in 2009-10.”
To use her expression, that is wildly fluctuating, but it is fluctuating in the opposite direction to fuel duties. We argue that the two can be balanced out.
Angela Eagle: I will explain why that is not the case, and why the proposal will produce perverse results. When oil prices rise, the premise is that the Government receive a windfall from either increased North sea tax revenues or greater revenues from VAT on fuel. As I argued last year, however, that is not the case. Although high oil prices might push up revenues from North sea oil taxes, there is no automatic link, as the significant increase in costs for oil companies that accompanied the last price spike showed. The impact of high oil prices on the wider economy means that the increase in North sea revenue is offset by falling revenues elsewhere for the Government. Lower GDP growth and higher energy costs reduce the yield from income and corporation taxes, while higher fuel prices lead to lower fuel consumption and lower revenues from fuel duty. For example, in 2008-09, when oil prices reached record highs in the summer, fuel duty receipts were £300 million below their 2007-08 level. In that sense, there is no windfall. [Interruption.] It is easy for Opposition parties to spend windfalls, but they do not exist as net windfalls for Government revenues, as I have just demonstrated.
Turning to VAT and the alleged windfalls that form the basis of the Scottish National party’s regulator mechanism, high fuel prices at the pump do not produce an overall increase in VAT receipts. When consumers have to pay more for fuel, they tend to buy less of other goods, thereby paying less VAT elsewhere. To prove that, in 2008-09, when crude oil prices and fuel prices reached record levels, total VAT receipts were almost £2 billion below their 2007-08 levels. Again, Opposition parties are trying to spend windfalls that do not exist in net form for Government receipts. They are trying to attach automatic mechanisms that would oblige us to spend windfalls that we do not have. Such distortionary effects on public spending would do great damage and achieve the opposite of stability—volatility, with large, sudden holes in public finances, which could be avoided without such mechanisms.
As well as that fundamental objection to the principle of the fuel duty regulator, there are also serious practical problems with its implementation. Under the proposed Scottish National party mechanism, the Chancellor would produce at each Budget an oil price forecast for the coming year, which would act as what is described as a baseline price. Fuel duty rates would be reduced when oil prices rose above that baseline, and would rise when oil prices fell below it. We should take a bit of time to focus on how important the baseline—and the amount at which it was set—would be. It would have a real effect on tax duties, yet it would be very subjective.
Mr. Jeremy Browne: I am fascinated by the process by which the Minister thinks that the baseline would be arrived at. Is it something about which Lord Hattersley, or other people with expertise in Government intervention from the 1970s, would be able to advise the Conservative party?
Angela Eagle: I suspect that Gazprom, or some of the more centralised old Soviet planners, might be able to take a view on the correct baseline for oil. I must confess that I do not know how one could set that baseline, other than very subjectively. What would be a fair baseline price? The process of determining the baseline would be likely to be highly arbitrary, and therefore open to frequent challenge. The Government would have a constant incentive to set the baseline higher, and motorists and other organisations would call for it to be lower, because that would have an effect on whether prices went up or down.
Last summer, the Opposition appeared to suggest that the Budget forecast should be used as a baseline, but as is well known, oil prices can be volatile and difficult to predict. I suspect that if the Conservative party had predicted oil prices, and had known what was to come, it would not have released its press release and developed its so-called fuel duty stabiliser. It is certainly indisputable that in recent years, forecasts of the price of oil have been subject to wide margins of error. In Budget 2008, the average of independent forecasts, which is what we use for the Red Book, was just below $84 a barrel, yet within four months of last year’s Budget, oil prices had reached a record peak of just over $146 a barrel. Another four months later, by the time of the 2008 pre-Budget report, oil prices had fallen by more than 60 per cent. to below $50 a barrel. After further fluctuations in the first few months of this year, on Budget day 2009, the Brent crude price closed at $49.81 a barrel.
According to information from the Conservatives outlining the policy for their so-called stabiliser mechanism, a $6 per barrel shift in the crude oil price would result in a 1p per litre adjustment to the fuel duty rate, yet as my right hon. Friend the Chief Secretary pointed out on the subject last year—she is here, listening to the debate with great interest—crude oil prices frequently moved by more than $6 a barrel in a single day. In the past year, the oil price moved by more than $12 a barrel on five occasions in the course of a week.
Instead of a change being triggered by a $6 difference in the oil price, one could, I suppose, adjust fuel duty at certain set points throughout the year, as the Conservatives originally suggested, but there would then be a significant risk of a market distortion. If the crude oil price were to be regularly compared against the baseline price, it could offer oil traders incentives to bid up the oil price before each assessment date, in the hope of artificially engineering a lower fuel duty rate. Gaming takes place when there are such things to predict and bet against, as I am sure the hon. Member for South-West Hertfordshire (Mr. Gauke) knows.
Speculation that the duty rate was about to change as the assessment date approached could encourage forestalling activity to avoid duty, producing yet further instability. Overall, frequently changing the rate could impose significant additional administrative burdens on fuel producers.
Mr. Jeremy Browne: I am interested in this point, because amendment 11 asks the Chancellor to undertake research. As the Minister rightly said, the report from the official Opposition has been suppressed, and it is now the task of the Treasury to try to undertake that research. Can she give me an assessment of the cost of undertaking that research, and tell me what the administrative burdens will be on retailers, specifically petrol retailers, who might find it impractical if the price is adjusted every single day as a consequence of the stabiliser? Such retailers may also find that the system has a detrimental impact on employment.
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Angela Eagle: Depending on how the so-called stabiliser was applied, those would clearly be important issues. I look forward to seeing the results of the Opposition’s consultation, where they will no doubt set out these issues out in great detail so that we can make an even more detailed judgment of their policy.
Fuel prices do not immediately alter following adjustments in the oil price. If fuel duty were altered on a monthly or bi-monthly basis, it would be highly unlikely to result in a constant fuel price, as oil prices often rise and fall at very short notice. If the stabiliser were to alter on a six-monthly basis, it might not respond to oil spikes at all.
For example, imagine that in 2008 the Budget oil price forecast of $84 a barrel had been used as a baseline, but the fuel duty rate was adjusted only every six months, on 1 April and 1 October, say. On 1 April 2008 the Brent price was $100 a barrel, but on 1 October 2008 the Brent price was $95 a barrel, so had a stabiliser been operating on a six-monthly basis, it would barely have changed, yet we would have had the huge spike in the middle, with no response to it whatsoever. That is a funny definition of stability, or lack of bumps, so to speak.
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