Justine Greening
Main Page: Justine Greening (Independent - Putney)Department Debates - View all Justine Greening's debates with the HM Treasury
Finance (No. 3) Bill
Justine Greening Excerpts(13 years ago)
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Mr Kevan Jones
Does my hon. Friend agree that if we had listened to those on the Conservative Front Bench, including the Chancellor of the Exchequer, who did not want to intervene in Northern Rock and wanted to let banks go bust, the banking crisis in this country would have—[Interruption.] The Economic Secretary chunters from a sedentary position, but what I am saying was said by the—[Interruption.] She can keep chuntering, but the truth hurts. The fact of the matter is that if we had listened to the Chancellor—
Kerry McCarthy
My hon. Friend makes a valid point, which I will come on to in a moment. [Interruption.] Ministers are peddling the line that it would take six years to achieve such a derogation from the EU. I ask them, have they even tried? I suspect that the answer is no. It is a fairly defeatist attitude to say that we will not even ask because we know what the answer will be. That is not fighting for Britain’s corner in the European Union.
As I was saying, there was an alternative for the Government. We called on the Chancellor to scrap the hike in VAT on fuel, which would have been of genuine help to families and businesses. It could have been paid for from the £800 million more than expected that was raised from the bank levy. Unlike the stabiliser proposed by the Conservatives in the run-up to the general election, that would not have been “unbelievably complicated and unpredictable”, to use the words of the Secretary of State for Business, Innovation and Skills.
The stabiliser is based on the idea that taxation will vary according to fluctuations in petrol prices, so that
“when fuel prices go up, fuel duty would fall. And when fuel prices go down, fuel duty would rise”,
to use a direct quotation from the Conservative party consultation document on the issue. The stabiliser was a flagship policy for the Conservatives in the general election campaign. The present Prime Minister made an issue of it when he visited a Coca-Cola plant in Morley just a week before polling day, where he said that
“it would give you certainty as you go about your lives, knowing what your salary is, knowing what your mortgage is, we’d be helping with the cost of living by trying to give you a flatter and more constant rate for filling up your car”.
When the Conservative party got into government, it soon realised that that was an empty promise, made glibly without doing the homework required, as we have seen with so many of its policies in its year in government. In the Budget, the Chancellor resorted to a different so-called stabiliser by increasing the supplementary charge on North sea oil. We will discuss that issue later tonight when we come on to the next group of amendments.
It is true, as my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) mentioned, that asking for a special rate of VAT would require our asking for a derogation from the European Commission. The Chief Secretary to the Treasury said that the Government could not afford to “sacrifice income willy-nilly”. However, he was willing to go to the EU to ask for a derogation for remote islands, although not for the rest of Scotland or the UK. Even members of the Conservative party agree that the solution should apply to the rest of the UK.
Justine Greening
I just want to check that the hon. Lady is aware that she is talking about two entirely different taxes. The tax that relates to rural areas is fuel duty, and the other derogation that her party is unwilling to accept is illegal to pursue relates to the EU VAT directive.
Kerry McCarthy
I am making the point that there are precedents for applying to the EU for a derogation, and I will come on to examples of other Governments who have done so.
I was about to quote the hon. Member for Brigg and Goole (Andrew Percy), who said from the Conservative Benches when we were debating the rural derogation:
“The pressures that affect the islands of Scotland and the Scilly Isles affect our constituents too.”
He went on to say that
“if any solution is applied to one part of the United Kingdom, it must be applied to other parts of it as well.”—[Official Report, 16 March 2011; Vol. 525, c. 352.]
Incidentally, we have heard reports that the Chief Secretary’s derogation on that issue may be approved by this summer, after he applied only on Budget day. That is rather quicker than the six to seven years that the Government have claimed would be needed for a broader derogation on VAT for fuel.
The French Government were willing to go to the EU to ask for special dispensation for French restaurants, and several member states have asked for other derogations in the past. Derogations have been granted for goods as diverse as fertilisers, pesticides and works of art, and for services from amusement parks and hotels to cleaning and cable television. In 1994, the British Government secured a derogation for domestic fuel, and in the past derogations have been granted to some member states for reduced VAT on goods such as heating oil.
Justine Greening
Since the hon. Lady gives a whole list of derogations, perhaps she will also be prepared to tell the Committee how long they took their respective Governments to achieve.
Kerry McCarthy
As I said before, the Economic Secretary invents a mythical time frame which she says it would take for her to achieve a derogation from the EU on VAT on fuel. I have asked her several times now in various debates whether efforts have even been made to raise the subject with the European Commission, and answer has come there none.
Justine Greening
The hon. Lady obviously does not know the answer, but I do—it took more than six years. Does she think motorists should have to wait six years before her party’s policy can come into effect? It is unlikely ever to be accepted.
Kerry McCarthy
The hon. Lady invents a mythical obstacle to achieving a derogation, without even having tried. Many of her Back Benchers who are constantly urging Ministers to stand up to the European Commission will be very disappointed that they are using the Commission as an excuse. They could have avoided this situation by not introducing the rise in VAT on fuel earlier this year. They should have considered the consequences before entering into such a policy.
The UK has not applied for as many derogations as other member states. We have only one reduced rate, which is used largely for energy and energy-saving materials and a number of health products, as well as the zero rate. France, Italy and Poland have each secured three different reduced rates of VAT, in addition to a zero rate, so there is clearly scope for the UK to ask for a little more.
While Labour was in government, we never applied for a special rate of VAT on fuel, but the reason for that is simple: we never raised VAT on fuel in the first place. This is a problem that the Government have created, so rather than simply telling the Committee that a derogation would be illegal, perhaps the Economic Secretary can once and for all tell us whether the Government have made any serious attempt to start negotiations with the European Commission on the matter, or whether they are simply capitulating to the Commission without putting up a fight.
We have tabled the amendment so that the Government’s fuel duty cut will be shown for what it really is—a 1p cut that is wiped out by the 3p a litre increase resulting from their VAT rise on fuel. It comes at a time when petrol prices are already rising rapidly and reaching record highs, when families are already squeezed and when the economy is struggling to grow. It comes after the Government refused to take the alternative approach that we put forward, which would have been a genuine help to families. The amendment means that the Government will have to face up to the fact that they have made the wrong choice at the wrong time and are harming, not helping, working people.
Justine Greening
The hon. Lady mentioned VAT. Given her concerns regarding the increase that she says the Government introduced, did she vote against it?
Alison McGovern
The VAT increase that the Government have introduced is clearly highly regrettable. I might just take the opportunity of the Minister’s intervention to correct a common way of phrasing what happened under the previous Government when my right hon. Friend the Member for Edinburgh South West (Mr Darling), the former Chancellor of the Exchequer, temporarily lowered VAT. Government Members often say that Labour increased VAT, as though the decrease was not intended to be a temporary measure to help the economy. There is a difference: the Labour Government helped people through with a cut in prices, but this Conservative-led Government think that the future of taxation in this country should be higher prices in the shops.
Hugh Bayley
First, I want to compare the records on fuel taxation of the most recent Labour Government and the previous Conservative Government. My view is that the Labour Government were a great deal kinder to the motorist, and the following figures are provided by the current Government. Figures from the Department of Energy and Climate Change show that in 1990, when the Conservatives were in power, 59% of the price paid at the pump by the motorist and road haulier for unleaded petrol was taken by the Government in fuel taxation, and that it rose to 75% during the following seven years of Conservative rule; the Government therefore took more and more and more in taxation. When Labour was in power, however, the proportion of the price of unleaded petrol taken in fuel taxation fell to 65%. The figures for diesel are almost the same. Under the Conservatives, the tax take rose from 57% to 74%, whereas Labour brought it down to 64%.
I would like the Economic Secretary to the Treasury to answer one question in her response, on the following subject. Since the general election, Government policy—not just Conservative policy, but Conservative and Liberal Democrat policy—has been to increase the tax on fuel by about 3p a litre through the increase in VAT and to give back roughly a third of that, 1p a litre, through the reduction in duty. That policy will slightly help road hauliers, because the duty element will reduce. The VAT element increases, but hauliers are able to recover the VAT, or at least pass it on in the VAT they charge their customers. So the effect of the Government’s policy will be to clobber the private motorist to the tune of 2p a litre, because they will have to pay the VAT increase out of their own pockets, while providing slight relief to businesses, particularly hauliers. I say “slight” because the price of fuel has increased as a result of a number of factors, including the increase in the cost of oil and the fall in the value of the pound on the international exchanges. So motorists and hauliers have been clobbered by the market and by the Government, but hauliers are being hit slightly less hard than the private motorist because they are able to recover the VAT increase.
My question to the Economic Secretary is as follows: is it a deliberate act of Government policy to make life slightly easier for businesses but to clobber the private citizen, or is it just an accident that that has happened? This is one of the things that ought to be studied in the review that the Opposition amendment proposes. We should examine the relative merits of taxing fuel for vehicles through VAT as opposed to through fuel duty, and who the gainers and losers are.
My hon. Friend the Member for Wirral South (Alison McGovern) made a very powerful speech about the impact that the increase in VAT on fuel has had on family budgets, and the impact that inflation generally, and fuel inflation in particular, is having on families who are having their earnings squeezed. My Front-Bench colleagues’ amendment proposes that the review ought to consider that matter.
I would like such a review also to consider one other issue, because I do not believe that the Government have yet done so—although I would be delighted to be corrected if they have carried out the sort of analysis that I propose. The review should also examine the impact that taxation has on the demand for fuel. The previous Conservative Government, one and a half decades ago, introduced a fuel price escalator. I understand that their reason for doing so was environmental: they wanted to increase the price of fuel to depress the demand for it, and so reduce carbon emissions. That was the policy intention, and it is one of the reasons why Conservative policies cost taxpayers and consumers so much. I mentioned that the fuel tax take rose from 59% to 75% in their last seven years in office. I wonder whether the Minister can tell me whether that sharp increase in fuel taxation under the previous Conservative Government actually did depress the demand for fuel, because that is an important consideration. If we change the marginal rate of fuel taxation, economics suggest that there should be some elasticity in demand.
The Government say that they want to be the greenest ever, so they ought to consider the carbon emission consequences of changes to fuel duty and VAT on fuel. I hope that Treasury Ministers have taken advice on that from both the Department of Energy and Climate Change and the Department for Transport. They ought to have done, if they really are—[Interruption.] Does the Financial Secretary to the Treasury want to intervene? No, he is back in his seat. The Government ought to take advice before they make such proposals, so that they can assess the environmental impact of a fiscal measure. I am waiting to hear from a Minister, but it sounds as though that has not happened. It ought to if the Government are serious about the environmental consequences of their fiscal policy.
Hugh Bayley
The Economic Secretary wants to intervene, and I hope she can tell me that the analysis has been done and what its outcome is.
Justine Greening
I direct the hon. Gentleman to the tax note that we issued at the Budget. The answers to his questions are there; clearly he has not read it yet.
Hugh Bayley
I have not read it—[Interruption.] That is why I ask the question. If the hon. Lady would care to read it to the Committee, I would be pleased to listen.
Justine Greening
As the hon. Gentleman could not read the note himself in advance of the debate, I shall read it to him now:
“Removing the fuel duty escalator and cutting duty by 1ppl could result in a small increase in CO2 emissions in 2011-12 of 0.4Mt. However, emissions from road transport are forecast to be approximately 1 per cent lower than current levels by 2015-16 owing to underlying trends in”
fuel efficiency.
Hugh Bayley
Is it the Government’s policy, then, to use fiscal measures to reduce carbon emissions? Is that what brought about the carbon variation of 1.4 megatonnes—is that what the hon. Lady said? [Interruption.] It is 0.4 megatonnes; I am grateful to stand corrected. Has the reduction that she mentioned come about as a result of the Government’s proposed fiscal changes, or as a result of the economic downturn that is a result of their policies? There is an important difference. One would expect the fall in economic activity that we have seen as a result of the Budget—the Office for Budget Responsibility has revised down its forecast for growth as a result of the Government’s fiscal measures so far—to lead to a decline in carbon emissions from both road transport and other sources. I am not clear from what the hon. Lady has read out whether the reduction in carbon emissions will be a result of the fiscal measure or of a reduction in demand because of a contraction of the economy.
Mr Kevan Jones
I support the amendment, which asks for a review. In the previous debate, we asked for a review of the implications of the bank levy. Similarly, the amendment calls for an assessment of the impact of taxation on fuel prices. It would be disingenuous to suggest that all Governments have perfect relationships when it comes to dealing with fuel duty. Clearly, the previous Government had problems with the cost of fuel and difficulties over taxation, but my hon. Friend the Member for York Central (Hugh Bayley) exploded one of the myths about the tax-take from fuel duty. Under the Conservative Government from 1990 to 1997 the tax-take on unleaded petrol rose by 16%, and under the Labour Government between 1997 and 2010 the tax-take fell from 75% to 65%.
The Government delayed the planned fuel duty rise, as Labour Governments did previously, as oil prices rose. Was that the right decision? Yes. At a time when many hard-working families are affected not only by higher inflation and increased taxation, but by wages being driven down and in some cases by family members facing unemployment, the Chancellor’s VAT increase puts about £1.30 on the cost of filling up a 50 litre tank of petrol.
Justine Greening
Will the hon. Gentleman tell the Committee whether he voted against the VAT increase? I suspect he did not.
Mr Jones
I am becoming concerned. The hon. Lady’s blood pressure does not seem stable tonight. She seems to be turning red and getting rather excited in tonight’s debate, which I am not sure is good for her health. Why did she argue for and push through an increase in VAT when she and her Prime Minister stood on a manifesto saying that they would not put VAT up? That is not being honest with the British people. What she has to explain to hard-working families in my constituency, North Durham, and in Putney is why she reneged on that promise.
There has been much talk in recent weeks about trust in politicians, and a lot of nonsense talked by the yes to AV campaign about whether MPs are hard working and trustworthy. When the Prime Minister and the hon. Lady say clearly that they will not increase VAT, and then that is the first thing she does, I understand why my constituents and hers are rather cynical about certain promises.
In the Budget the Chancellor used the gimmick of cutting the price of petrol by 1p. We will shortly debate how he will pay for it. It has had disastrous consequences for the economies of parts of Scotland and north-east England. He also increased VAT by 3p. He took it off with one hand and put in on with the other. Paying for that will have consequences for oil exploration in the North sea not only in the next year or so, but for a generation.
Justine Greening
Clause 19 cuts fuel duty by 1p per litre. In fact, it has already happened—at 6 pm on Budget day. That was the first step in removing the Labour party’s planned fuel duty escalator and, instead, putting in place a fair fuel stabiliser, which will ease the burden on motorists.
The hon. Members for Gateshead (Ian Mearns) and for North Durham (Mr Jones) talked about the burden that the planned tax rises would have placed on their own region, and I can tell the hon. Member for York Central (Hugh Bayley) that, in fact, under the previous Government fuel duty rose by 55%, so it is simply wrong to focus totally on the previous Conservative Government. His Government increased the burden on motorists substantially.
The amendment calls for the Chancellor to publish an assessment of the impact of taxation on fuel prices within three months of the Act being passed, and it aims to determine the extent to which the cut in fuel duty has been passed on. By introducing such a measure, Opposition Members clearly intend to distract the public from their policy, which would have seen pump prices rise yet further as they introduced their planned escalator. In addition, the Opposition appear keen to suggest that the cut in fuel duty and the cancellation of their fuel duty escalator has not offset the effect of the VAT increase at the start of the year—a VAT increase that as a party they did not vote against.
I will go on to set out the Government’s assessment of the impact of this measure, as Members have requested, and to address the points raised in the debate, but perhaps I should start by explaining to the Committee why the Government took the action they did in the Budget to support motorists at this time of record pump prices. It is true that motoring is an essential part of everyday life for many households and businesses, as mentioned by the hon. Member for Wirral South (Alison McGovern). The Government also recognise that the rising price of petrol has become an increasingly significant part of day-to-day spending, and we know that high oil prices are causing real difficulties in ensuring that motoring remains affordable. It is important that when shocks such as the steep rise in the oil price occur a responsible Government are able to listen and respond.
The previous Government would have introduced a fuel duty escalator, which involved seven fuel duty increases, three of which have been implemented, adding 3p to pump prices, and they had planned another above-inflation increase for the start of last month.
Andrew Gwynne
Is the Minister not even slightly embarrassed that her Government did not seek the powers to get a derogation from the European Commission? Her party has gone from being the party of “No, no, no” on Europe to the Putney shrug.
Justine Greening
The hon. Gentleman’s party does not even have a position on that because Labour Members abstained on it. If the policy in clause 19 is so bad, I expect them to vote against it, but I suspect that it will be another case of abstention making the heart grow fonder. I do not think that that will work with taxpayers, who remember exactly who was planning to bring in the fuel duty escalator had they remained in power.
This Government listened to hard-pressed motorists and businesses. We declined to increase the escalator and to introduce the 1p per litre fuel duty increase, which would collectively have added 6p to pump prices compared with what they are now. Instead, we responded with a £1.9 billion package to ease the burden on motorists at this time of record pump prices. We acted by cutting fuel duty by 1p per litre from 6 pm on Budget day. We cancelled the previous Government’s fuel duty escalator for the rest of the Parliament. We introduced a fair fuel stabiliser that will better share the burden of high oil prices between motorists and oil companies, and so fuel duty will increase by inflation only when oil prices are high.
Hugh Bayley
I read from a Library briefing:
“In its Budget in March 1993 the Conservative Government introduced a ‘road fuel escalator’—a commitment to increase duty rates on these fuels in real terms by a specified percentage each year”.
I accept that that was continued for a number of years by the Labour Government before being abandoned, but the Minister should not say that the public do not forget things and then gloss over the fact that it was a Conservative Government who brought in the fuel price escalator.
Justine Greening
I will tell the hon. Gentleman one thing we did not do, and that is hand over a huge fiscal deficit to the incoming Labour Government.
Justine Greening
No, we have heard enough from Labour Members.
We had to take decisions to support motorists in spite of the catastrophic state of public finances that Labour handed over. We have made sure that there are no fuel duty increases this year by deferring the inflation-only increase that was planned for April to 1 January 2012. This is real help for families and for businesses. As of 1 April, average pump prices are approximately 6p per litre lower than if we had continued with the previous Government’s escalator.
Penny Mordaunt (Portsmouth North) (Con)
I have listened to this debate with great interest, because I was previously spokesman for the Freight Transport Association and I remember that one year into the Labour Government’s stewardship of the fuel duty escalator hauliers were on the streets of London on a go-slow programme because of the way that they approached taxation.
Justine Greening
My hon. Friend is right to refer to the response of hauliers to the previous Government’s policy.
The hon. Member for York Central called the action that the Government have taken for hauliers in the Budget “slight”. Actually, the average haulier will benefit by approximately £1,700 in 2010-11 as a result of those measures compared with what they would otherwise have faced. I also draw his attention to the remaining part of the package for motorists, which includes freezing vehicle excise duty on HGVs, providing further help to hauliers. The package is even broader than that, because for motorists who are required to use their own vehicle for work, the approved mileage allowance payments rate, which had not been increased by the previous Government since 2002, was increased from 40p to 45p per mile for the first 10,000 miles. An average AMAPs user claiming for 2,500 miles a year will benefit by £125 a year.
John McDonnell
In the Budget statement, the Government informed us that they were submitting a derogation request to the European Union for the rural fuel duty rebate pilot scheme. The Chief Secretary to the Treasury told us that permission would be received over the next few months. Will the Economic Secretary inform us of whether permission has been received? Given the representations that have been made today for an expansion to other regions, is that not something that should be considered as part of a review as a matter of urgency?
Justine Greening
The hon. Gentleman will be aware that the derogation is to carry out a pilot to look at how we can support rural areas with a fuel duty discount. He is right to point out that we have submitted a formal request to the European Commission, and we wait to hear its response. I assure him that we got on with that derogation request, just as we said we would.
If I may, I will make progress on the issues that have been raised by hon. Members.
Hugh Bayley
The Economic Secretary has been extremely generous. A few minutes ago she referred to the deficit and the debt inherited by the incoming Government. Has she forgotten that during John Major’s premiership, the national debt almost doubled, and that during the first 10 years that Labour was in power, the Government reduced the national debt by 40% through good stewardship of the economy?
Justine Greening
The hon. Gentleman is obviously one of the Labour party’s structural deficit refuseniks. He simply refuses to accept that the deficit exists. I am sure that he would also refuse to accept that his party left unemployment 400,000 higher by the end of its term in office. We understand the problems that our economy faces and the Budget was all about tackling them.
I will turn to the substance of the amendment. For motorists to realise the benefits of the cut in fuel duty, retailers need to pass it on at the forecourt. If the cut in fuel duty had been fully passed on to average pump prices, including VAT, they would have been 1.2p per litre lower. The amendment seeks a published assessment of the degree to which the cut fed through to pump prices. As I said, we have already published a tax information and impact note that sets out our analysis of the impact of the cut. Following the Budget, the website petrolprices.com, which gives independent average daily prices and which the previous Government used to track prices, showed that average pump prices fell by approximately 0.8p per litre between 23 and 28 March. It can be clearly seen that the reduction in fuel duty largely fed through to prices at the pump. Therefore, prices are lower due to our actions and motorists are benefiting from the cut in duty. Let us not forget that average pump prices are approximately 6p per litre lower as a result of the cut in duty and our scrapping of the previous Government’s planned escalator, which they would have gone ahead with.
Julie Hilling
I am a little bit confused, because the Economic Secretary is talking about how wonderful the Government’s actions on fuel prices have been, but it seems to me that in the past 12 months, fuel has gone up by something like 25%. I do not see why the Government are saying how brilliant their actions have been when people are paying something like £1.40 a litre instead of £1.10 a litre. A penny off, 3p on, 40p on—it does not make sense to me.
Justine Greening
As the hon. Member for Wallasey (Ms Eagle) said back in May 2009,
“there are very few even socialist theorists who would suggest that commodity prices were somehow controllable”.—[Official Report, 13 May 2009; Vol. 492, c. 918.]
I do not think the hon. Member for Bolton West (Julie Hilling) can expect the Government to control commodity prices, but what we can do is take action to lessen the effects of swings in the oil price as they feed through to the pump. That is precisely what we are doing in clause 19 on fuel duty, and we will shortly debate the mechanism by which we can pay for that, which is the fair fuel stabiliser.
Of course, the Labour party has suggested that we should create a separate VAT rate for petrol. As has been pointed out even by Labour Members, that would have provided no help for hauliers, and I remind the Committee of why the Chancellor rejected the proposal. It would take six years, and it would not even be able to come into effect then, because the current EU VAT directive means that it is illegal. I do not think motorists should have to wait for six years, and the Government are not going to wait six years. We listened, and we responded as of 6 pm on Budget day.
Finally, I shall address the issue of VAT. I know that it is not strictly within the scope of the debate, Mr Hoyle, but it is important. The Opposition have been quick to point out that although the Government cut fuel duty by 1p in the Budget, pump prices have increased by about 3p following the VAT increase. They appear to be implying that motorists would be better off under their plans for an escalator and a VAT rate of 17.5%, although of course we know that the right hon. Member for Edinburgh South West (Mr Darling) was planning to increase VAT himself. I suspect that they wish to use the amendment to prove their point.
It is simply not true that motorists would be better off under the previous Government’s tax plans, and let me be absolutely clear that even comparing the changes that we announced in the Budget with the previous Government’s fuel duty and 17.5% VAT plans, it is likely that on 1 April pump prices were 3p a litre lower than they would have been. Even after the two increases in fuel duty next year, average pump prices could still be about 1p a litre lower than they would have been under the previous Government’s plans. Cutting fuel duty and scrapping their escalator more than offsets the impact of the VAT increase, and I should not need to explain to Opposition Members that an increase in VAT was needed to cut the deficit that they left behind. They did not even have the political courage to vote against that measure, which they were so upset about—absolutely shameless.
In government, Labour Members ran our country’s public finances into the ground, and now, in opposition, they bring forward this feeble and unnecessary amendment. Dare they even push it to a vote? We will find out. I suspect that in the case of clause 19, it will be a case of another day, another abstention. The Government are providing motorists with a fair deal. Where the previous Government left tax rises, we have taken action, and I ask the House to reject the amendment.
Kerry McCarthy
We have had an interesting debate over the past couple of hours. It is notable that although we have had some significant and thoughtful contributions from my hon. Friends, not a single member of the Conservative party, apart from the Minister, or a single Liberal Democrat has felt the need to speak up for their constituents and talk about rising fuel prices. I am sure their constituents have lobbied them about it, but their silence in the Chamber today speaks volumes.
My hon. Friends the Members for Wirral South (Alison McGovern), for Gateshead (Ian Mearns), for Ilford South (Mike Gapes), for York Central (Hugh Bayley) and for North Durham (Mr Jones) have all highlighted the impact of the rise in fuel prices and of the Government’s decision—and it was the Government’s choice—to raise VAT from 17.5% to 20%. They described the impact on families’ living standards, on businesses in their constituencies, on the haulage industry and across the board.
The point is that the Minister’s view of the impact is short-sighted. She cited the impact of the measures in the Budget from 23 March to 28 March, which must be the smallest, most selective economic data ever cited in the Chamber. It would be interesting to know what happened after 28 March, to which she did not refer. She also tried to lead us down the garden path by talking once more about the fuel duty escalator, but she knows full well that the Opposition called for the Government to reconsider that in the Budget and welcomed the fact that they did so.
The debate is on the VAT increase, which the Government chose to introduce. We are asking simply that they publish an assessment, within three months of the Bill becoming law, of the impact of taxation on fuel prices. I do not think that that is too much to ask. I was surprised to hear the Minister say that we would not press the amendment to a Division, because I can inform you, Mr Hoyle, that we do indeed intend to do so. With that, I rest my case.
Question put, That the amendment be made.
Kerry McCarthy
The Economic Secretary said that it had led to a drop of 0.8p at the pumps between 23 March and 28 March, which seems very selective. It is clear now that petrol prices at the pumps have gone up and that the Government have gained very little from their approach.
In the run-up to the general election, both the current Chancellor and the current Prime Minister were clear that they would deliver on a fuel duty stabiliser. Voters were led to believe that the Government could and would act on that. However, in March, as we approached the Government’s second Budget, the Opposition pointed out that the fair fuel stabiliser was still nowhere to be seen. Even with fuel prices rising above £6 a gallon, due to the rising price of oil—the very situation that a stabiliser was meant to help with—the Government had still been unable or unwilling to act. That was because their original plans would never have worked.
The Conservative party had believed that rising oil prices led to higher tax revenues for the Government, which could then be shared with motorists. It turned out that, just like the proposals we see in the Bill, they had been poorly thought through. They were told that they were wrong not only by Labour Members, but by the Institute for Fiscal Studies, which stated that
“the claim that the Treasury receives a windfall gain when oil prices rise that it can “share” with motorists is incorrect.”
They were told that they were wrong by the chair of the Office for Budget Responsibility, Robert Chote, who said it
“would be likely to make the public finances less stable rather than more stable.”
They were even told that they were wrong by the current Secretary of State for Business, Innovation and Skills, who said before the election that the fair fuel stabiliser would be
“unbelievably complicated and unpredictable.”
Justine Greening
The hon. Lady is providing a critique of our policy, but her party has just decided not to oppose our fuel duty reduction, which, compared with what they proposed for the public finances, represents a difference of approximately 6p per litre. How does she propose to pay for the change in fuel duty that she has just not voted against?
Kerry McCarthy
The Minister is trying to return to the topic we debated in the previous group, so perhaps she should have been a little quicker and thought up her intervention then. I am talking now about stability in fuel prices and the empty promises the Government made to the electorate in the run-up to the election that they would be able to do something to stabilise fuel prices at the petrol pumps.
Representatives of the oil and gas industry tell us that as recently as February the Government were giving assurances that they wanted to keep the North sea tax regime stable, as they had said in their previous Budget, but between February and April they very swiftly changed their mind. Perhaps the Minister can tell us why? What caused the Government to have such an urgent rethink on the fair fuel stabiliser? Many of us suspect that the increased scrutiny that the Opposition brought to bear on the Government’s policy might have prompted them belatedly into action—action they would have realised much sooner was needed if they had only done their homework and listened to what people were trying to tell them.
Inevitably, given the panicked way in which it was put together, the Government’s new version of the fair fuel stabiliser is equally as half-baked as the proposal put forward before the election. As a result, potentially tens of thousands of jobs, as well as billions of pounds worth of investment, are at risk, and the Government have broken their commitment to stable, consultative tax policy making.
Justine Greening
I will start by explaining why we introduced the increase in the supplementary charge rate. I will then cover the Opposition amendment and respond to the amendments tabled by my right hon. Friend the Member for Gordon (Malcolm Bruce) and my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) before explaining the two technical Government amendments.
I appreciate the constructive amendments tabled by my right hon. and hon. Friends. They have put a lot more thought into finding a way through the challenges than the Opposition, and I appreciate the points that they raised. I reassure them that we are working closely with the industry. We have met with its representatives on a number of occasions: I have met with them, as has the Chancellor of the Exchequer, and officials recently went to Centrica’s office to look through its calculations on field allowances and profitability. We are discussing with Oil & Gas UK and individual companies precisely the issues that have been raised in this debate.
The broad rationale for the increase is that the Government are abolishing the fuel duty escalator and replacing it with the fair fuel stabiliser. Clause 7 forms the second part of the stabiliser, which ensures that when oil prices are high, as they are now, and oil and gas production is more profitable, the companies that benefit more from that are asked to pay more. The hon. Member for Blaydon (Mr Anderson) fairly acknowledged that, and we are seeking to ensure that we do it in the right way, as he said we should.
Mr Anderson
Is not the point that this debate should have happened before the Chancellor made the decision, not afterwards?
Justine Greening
Realistically, it is not always possible to discuss rate changes with the industries concerned. It is not done as a matter of course, but the point about working with the industry to ensure that we understand the impact on more marginal investments is valid, and that is precisely what we are doing.
The clause increases the rate of the supplementary charge, which is a tax on the profits of oil and gas production, from 20% to 32% from 24 March this year. It is fair to point out that oil prices have increased from $77 a barrel at the time of the June 2010 Budget to about $125 a barrel today.
Dame Anne Begg
Plenty of other companies and industries deal in commodities whose prices go up, and plenty of other companies and industries make huge profits, but can the Economic Secretary name one other industry where the marginal rate of tax is 81%?
Justine Greening
The point is that we faced an increase in oil prices that had fed through pretty directly to pump prices. The increase in the cost of fuel was not just impacting on motorists, but having a huge impact on hauliers, on the cost of living and on businesses. We had to decide what was the right thing to do. I think that the right and fair thing to do was to share the burden by taking some of the additional profits that oil companies were making—profits at a level that far exceeded the projections of the companies when they made those investments. I will come on to answer the question from the hon. Member for Bishop Auckland (Helen Goodman) about projected future investment. I will give a telling statistic that makes my point very well.
We expect pre-tax profits from oil and gas production in the UK to be £24 billion in the current tax year, which is a 50% increase in just two years, primarily as a result of the increased oil price. Oil companies can afford to pay a bit more, but hard-pressed motorists, hauliers and businesses deserve to pay less.
Dr Whiteford
I am pleased that the Economic Secretary recognises the impact that fuel prices have been having on business and hauliers, particularly those in more remote and rural areas. It is precisely those areas, including the parts of north-east Scotland represented by myself and by the right hon. Member for Gordon (Malcolm Bruce) and the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith), who tabled the amendment, that face a hugely disproportionate impact on jobs and investment in the oil and gas sector.
Justine Greening
We have just agreed to clause 19 without either the Scottish National party or the Labour party having divided the House. If we are willing to accept the cost of the motoring package in clause 19, which I think we all accept was badly needed to support motorists, hauliers and businesses, we also have to accept some responsibility for putting in place a way of funding it. Clause 7 is how we will do that.
Justine Greening
Let me make a bit more progress, because Members have raised some real concerns and I want to ensure that I respond.
The Government recognise that we need to act as a good custodian of the UK’s natural mineral wealth; at the same time, we need to manage a tax regime that tailors the level of tax to the level of profits available from the UK continental shelf. The UK’s oil and gas reserves are a finite resource that belongs to the nation. Current oil production was not sanctioned on the basis of the high prices from which the industry benefits today. Those unexpectedly high prices and profits have arisen due to geopolitical events in the middle east and north Africa, as we have heard, and the Government must ensure that they secure a fair return for the UK taxpayer, particularly given the impact that oil prices are having on the broader economy outside the oil and gas exploration industry.
Stewart Hosie
But the tax rate was 50% before. Although clause 19 has been agreed to, it ought to have been paid for by the windfall that the Government got because of last year’s rise in the barrel price and by the windfall over and above the 2010 forecast that the Government are going to get this year. The problem is that what the Government have done with this tax grab, this 60% hike in the supplementary charge, is likely to damage investment and jobs and weaken economic recovery. It is not necessary to pay for clause 19—the money was already banked.
Justine Greening
I only wish that the hon. Gentleman’s assertion was correct. The previous Parliament debated this very issue, and I think it was responsible of the new Government to get the independent Office for Budget Responsibility to examine it, given that there had been conflicting assessments from different industry watchers and think-tanks. The OBR was very clear that although we received some extra revenue from the North sea as a result of higher prices, the impact of higher oil prices is far more wide-ranging. We can see that from the debate that we have had over a number of weeks, which continues tonight, about the impact of oil prices as they feed through to high pump prices.
I remind the hon. Gentleman of his own words about how to pay for the stabiliser back in 2009. He said:
“That amount could come from the VAT windfall or the North sea windfall, because it would be directly related to the price of oil.”—[Official Report, 13 May 2009; Vol. 492, c. 908.]
I know that he was talking about the direct revenues that he has just mentioned, but I think he was also making the broader point that a more general windfall accrues to the North sea industry when oil prices are high. I will talk briefly about some of the steps that we want to take to ensure that we mitigate the risks involved in the more marginal investments, so that we manage the concerns that have been raised, particularly by Liberal Democrat Members.
Amendment 10, which was proposed by the Labour party and spoken to by the hon. Member for Bristol East (Kerry McCarthy), would require the Chancellor to
“produce, before 30 September 2011, an assessment of the impact of taxation of ring fence profits on business investment and growth including an assessment of the long-term sustainability of oil and gas exploration in the North sea”.
As I have said, I want to reassure hon. Members that we are engaged closely with the industry. In fact, we explicitly mention in the Budget document that we want to work with the industry on field allowances, particularly those on marginal gas fields. Since coming to power, we have engaged closely with the industry, as my hon. Friends are aware. We have introduced a change to the ultra-high-pressure, high-temperature field allowance to ensure that the fiscal regime was appropriate to those prevailing circumstances.
The Government are keen to continue working with the industry. I have personally met representatives of Statoil and Centrica and spoken directly with them about their individual concerns. As I am sure the right hon. Member for Gordon is aware, Wood Mackenzie explicitly pointed to the Mariner and Bressay oil fields as two of the few fields where there would be an uneconomical impact, but for a variety of reasons, a number of technical challenges associated with those fields already made them a challenging investment. Nevertheless, we are working directly with Statoil to look at whether field allowances can be developed to help to unlock that investment.
The Government published our assessment of the impact of the measure in a tax information and impact note at the time of the Budget. Although we do not expect the measure to have a significant impact on investment or production in the forecast period, as I have said, we are working closely with the industry. First, we want to look at field allowances to see how we can unlock those more marginal fields, and secondly, we want to look at the longer-term issues that the industry is keen to address, including, for example, achieving more certainty on decommissioning.
Of course, the Government expect that the average post-tax profits per barrel will be higher over the next five years than it was over the past five years because of the higher oil price. In its analysis of the Budget, industry analyst Wood Mackenzie stated:
“At current high oil prices, few new projects will become uneconomic as a result of the change”,
However, we want to do what we can to ensure that investment is unlocked for those projects that remain at risk, so that they go ahead.
Helen Goodman
I am just a little concerned about how the Minister expressed herself in her most recent remarks. My understanding is that Ministers are not supposed to be privy to the individual tax bills faced by individual taxpayers. From what she is saying, it sounds as if a line has been stepped over when it perhaps should not have been.
Justine Greening
I do not think that that is true. It is perfectly normal and reasonable for the Treasury to work with industry and individual companies to look at the particular problems that they face. That is exactly what the previous Government did, and they introduced field allowances. There is no substance at all to the hon. Lady’s claim. In fact, she would have more justification for complaint if we were not taking such action.
As I have said, the recent very high sterling oil price has resulted in unexpectedly high profits for oil and gas companies, although at the same time it has resulted in financial pain for motorists and the wider economy. The Government therefore decided that it was appropriate to increase the rate of supplementary charge, to redress that imbalance. The fact that we have acted in that way does not mean that we do not appreciate the impact of taxation. However, we believe that investment in an exploration of the UK continental shelf will continue, driven by the record high oil price.
The hon. Member for Bishop Auckland (Helen Goodman) asked about forecasting. Of course, there is a range of industry forecasts on future oil prices, but the Government use the OBR, which is entirely independent of us. The OBR forecasts an oil price for the forthcoming years of this Parliament in excess of $100 a barrel for every year of that period.
Mr Kevan Jones
In response to my hon. Friend the Member for Bishop Auckland (Helen Goodman), the Minister talked about negotiations she is having with individual oil companies. Is the revenue from fields going down? If so, from where is she providing compensation to fill the gap, or is she not giving any money away at all in these negotiations?
Justine Greening
The hon. Gentleman is missing the point that because of the high oil price there is continued investment in the North sea. Interestingly, Professor Kemp’s optimistic scenario is $90 a barrel and 70p per therm, but as I just said, the OBR has projected independently that oil prices over the next five years could be more than $100. That is $10 higher than the most optimistic scenario in Professor Kemp’s analysis.
Stewart Hosie
It is worth pointing out the Professor Kemp states that his projections are all in real terms, so they increase yearly with general inflation, and he gives three different scenarios for a barrel-of-oil price plus the therm price. In each instance—I will be very accurate here—field investment is reduced by £19.2 billion, by £19.5 billion or by £29.1 billion. Those are 30-year forecasts. For the sake of accuracy and completeness, therefore, I am sure that the Minister will agree that Professor Kemp and Linda Stephen’s work points to reduced investment over all the scenarios investigated.
Justine Greening
I just said that we accept that there will be a marginal impact; however, Wood Mackenzie has said that it does not expect that marginal impact to be high. If we look at Professor Kemp’s optimistic scenario of $90, which is less optimistic than what the OBR is projecting, and then use the hurdle rate most commonly used by most companies, we see that in the high-price scenario, total future projects are expected to fall from 1,099 to 1,074—a 2% reduction. We are saying that we recognise that. We therefore believe that the challenge is now for us to work with the industry to ensure that we can mitigate the risk to that 2% of investment.
I turn briefly to the amendments in the names of my right hon. Friend the Member for Gordon and my hon. Friend the Member for West Aberdeenshire and Kincardine. Clearly, the amendments enabled them to make the points they wanted to make, but I think they would accept that the way in which their proposals would operate could mean that the supplementary charge rise started later and lasted potentially for a finite time. It might also have a staged approach. All those things would mean that the funding would not be in place to fund the package we want to introduce for motorists. I stress, however, that as my right hon. Friend the Member for Gordon said at the end of this comments, the way through this is to ensure that we work with the industry. I am pleased with the engagement we have now had with the industry. We have got through our first meeting with industry representatives after the Budget, which was a chance for them to set out their reaction to a tax rise we did not anticipate they would welcome.
The Government amendments demonstrate that we are engaged with the industry and are listening to its concerns. In fact, as a result of that engagement we wanted to address a technical issue that had arisen involving the basis proposed for the apportionment of profits. The Government’s amendments seek to address that. The legislation provides for how profits in an accounting period that straddles the date of the rate increase are to be split, so that the two tax rates can be applied to the appropriate amounts of profits. Government amendment 11 provides that a company may elect for a just and reasonable basis to be used where a time apportionment would give an unjust or unreasonable result.
We have proposed amendment 11 to take account of the concerns of industry. The amendment has an Exchequer cost of £40 million in 2011-12 only. We feel that the change is worth while because it ensures, for example, that the tax change does not affect the tax liability due in respect of transactions that were wholly completed before the Budget and that should not, therefore, have been affected by the rate change. The change follows an approach that the industry has suggested and shows that the Government are willing to change the detail of the delivery of their stated policy aims where evidence of unforeseen effects is presented by the industry. I urge hon. Members to accept the change.
This Government will carry on working with the industry on providing certainty in respect of decommissioning tax relief. Industry and officials will be engaging closely on that important piece of work in the coming months, and as previously mentioned, officials and Ministers are closely engaging with the industry in relation to the marginal field developments. We explicitly said that we would do that in the Budget, and we are now following up on that desire to ensure that investment continues to be unlocked. The concerns of gas producers are also being discussed with them. As I have mentioned, the Government are also seeking the views of oil companies and motoring groups about the level of the trigger price for the supplementary charge, and how the oil price for that purpose is to be determined. That informal consultation will be take place shortly, and we expect to be able to clarify the policy mechanism in the autumn.
We want to ensure that the Exchequer obtains a fair share of the value of our natural resource wealth while ensuring that the tax regime does not impede the development of the basin’s potential. The impacts of the measure are understood, so no further assessment is required, and I urge the Opposition not to press the amendment. It is impossible not to note that they voted—[Interruption.] I was actually referring to amendment 10, which I would have thought Labour Members would recognise, having proposed it—although I suppose that anyone who has voted for a tax cut on fuel duty, even though they have no way of paying for it because they have set out their stall against getting the funding mechanism from the oil companies, might be expected not to have followed the arguments that I have set out.
The amendments proposed by my right hon. Friend the Member for Gordon are well intentioned. Let me reassure him once again that we are listening to representations from the industry and acting to ameliorate unforeseen effects. I therefore urge hon. Members to accept the Government amendments. The clause puts in place a fair fuel stabiliser, ensuring that we can pay for much needed help for motorists up and down the country. The clause also ensures that motorists and businesses suffer less pain from high prices at the petrol pump as a result of higher oil prices that would otherwise simply increase the profits of oil companies.
Malcolm Bruce
We have had a very useful debate, in which Members from all parts of the Committee have had the opportunity to express some pretty forceful points of view about the industry, as well as present facts from well informed sources. It is perhaps unfortunate that it is so late, but this still stands on the record as a valuable debate.
I thank the Minister for her constructive response and for the information about the Government’s detailed engagement. It would be fair to say that the immediate situation after the Budget was that the Government mounted a robust defence of their line against an industry that was shocked at what it heard. Perhaps the first meeting was less than constructive, although it is clear that things are now moving in the right direction. The amendments in my name and that of my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) suggest how we might have liked the Government to proceed. We recognise that the die has been cast, although it is important that the Government should continue to engage with the industry to understand the issues of competitiveness, because the oil price is worldwide and the UK has to compete for that investment.
It is also important to take on board the fact that although the losses in production and investment might be considered marginal, we are talking about margins on huge sums of money and huge resources. In other words, we are talking about 1 billion to 2 billion barrels of oil-equivalent, which is worth £70 billion to £100 billion, and £20 billion-plus of potential lost investment. It is important that the engagement between the industry and the Government finds solutions that can deliver the revenue that the Government need and are entitled to accept, given the very high prices, as well as delivering to the country the investment in long-term production that it needs. I believe that this debate has made a substantial and useful contribution. I welcome the Minister’s response to it, and I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: 11, page 3, line 13, at end insert:
“(4A) But if the basis of apportionment in subsection (4)(b) would work unjustly or unreasonably in the company’s case, the company may elect for its profits to be apportioned on another basis that is just and reasonable and specified in the election.”
Amendment 12, page 3, line 16, leave out “subsection (4)” and insert “subsections (4) and (4A)”.
Amendment proposed: 10, page 4, line 7, at end add:
“ (11) The Chancellor shall produce, before 30 September 2011, an assessment of the impact of taxation of ring fence profits on business investment and growth including an assessment of the long-term sustainability of oil and gas exploration in the North Sea.”—(Kerry McCarthy.)
Question put, That the amendment be made.