Taxes on Motor Fuel

Peter Grant Excerpts

Monday 23rd May 2022 Westminster Hall

[Justin Madders (Ellesmere Port and Neston) (Lab)]

It is a pleasure to see you in the Chair, Ms Elliott. I thank my hon. Friend the Member for Gower (Tonia Antoniazzi) for her excellent introduction, which she delivered with panache, as always. I am sure she pleased the people who signed the petition by covering many of the issues they want to raise.

This is an important debate for my constituency. We have made vehicles in Ellesmere Port for more than 50 years, and we have one of the few remaining oil refineries in the country. Most importantly, people in my constituency overwhelmingly depend on private transport to get to work. Some 78% of people in Ellesmere Port and Neston use a private motor vehicle to get to work, which is about 15% above the national average. That is not just a reflection of our proud industrial heritage; it is probably more to do with the lack of a regular and affordable public transport service in the area.

Although fuel duty and VAT are the same at whatever pump in the country someone fills up at, their impact differs depending on where they live and what they do for a living. Shift workers are far less likely to be able to use public transport to get to work. To be honest, people with jobs that finish after about 6 pm in my constituency are lucky to find a bus to take them home. If a person has children they need to place in childcare or school on their way to work, or pick up them up from afterwards, they may well need a car. If they are in a job that requires a large amount of driving, that of course makes a huge difference to how much they have in their pocket at the end of the week. Taxi drivers are a particularly affected group, but as my hon. Friend the Member for Newport East (Jessica Morden) said, so are care workers. Of course, the Minister will have some reflections on that from her previous role.

Nor should we forget about the impact that fuel has on other costs that we as taxpayers have to meet, including police cars, ambulances and school transport. There are literally millions of miles travelled every day that end up paid for by the taxpayer. The cost is quite often met by local councils, which do not have a say in the amount of fuel duty raised in the first place. As the hon. Member for North Ayrshire and Arran (Patricia Gibson) rightly pointed out, fuel costs also play into wider inflationary pressures, particularly on food and other services that are delivered.

What someone does, and where they live, can make a huge difference to the impact of fuel duty, and I am afraid that that extends to some inexplicable variations in the price at the pump up and down the country. It might only be a couple of pence most of the time, but that can quickly add up, and I wonder why the average price is a couple of pence more around Ellesmere Port than it is in various other parts of the country, given that we are on the doorstep of a refinery.

On a related point—this is something my hon. Friend the Member for Gower mentioned earlier—the RAC Foundation has said that the 5p cut in fuel duty, which was introduced by the Chancellor in March, led to an average fuel price reduction of 3.3p per litre for unleaded and 2.6p per litre for diesel. In their defence, the representative bodies for the retailers claim that their members passed on the cut in full, but that prices were rising at the time. It might not be right to lay the blame entirely at the door of the retailers, but it is very difficult to get the level of transparency we need.

[Peter Grant (Glenrothes) (SNP)]

Does the hon. Gentleman recognise that the other issue is that retailers often have no choice as to which distributor or wholesaler they go to? If the wholesaler does not take any of the 5p duty cut off the wholesale price of fuel, the retailer is given a double whammy: they cannot cut the price, but they get flak from drivers who expect to see 5p coming off a litre of fuel.

[Justin Madders]

The hon. Member is right, and it goes to my point about needing greater transparency. It can often be difficult to know exactly where the 5p has disappeared to, but I think it beyond contention that our constituents are not seeing the full benefit of the fuel duty cuts. The key question that we need to ask is how these measures will help to put cash back into people’s pockets. The reason this debate is so important at the moment is because we have the biggest squeeze on living standards in a generation, and the steps that the Government have taken so far are woefully inadequate.

The rise in prices across the world is obviously largely out of our hands, so it is inevitable that people will look at what the Government can change to ensure that there is some respite for people, and that help reaches those who need it most. We have already discussed the windfall tax at length in this place, so I will not repeat the arguments on that, but it is the fairest and most effective way to get help to those who need it most in a fairly quick manner. As we have seen already, although reducing the cost of fuel can help, there is a risk that such a reduction might not be passed on in full, and that it will benefit only those who have a car in the first place. In the context of wildly fluctuating oil prices, those savings may not be felt by people at all.

On fluctuating oil prices—or, to be more accurate, increasing oil prices—we should remind ourselves that higher prices at the pump mean that the Government have an increased income from VAT. Research has indicated that because of the rising oil price this year, the Government’s VAT receipts on pump sales have gone up by an average of 7p per litre for petrol and 9p per litre for diesel, which is far more than the 5p per litre that has been taken off. Fuel duty cuts might be a sleight of hand that creates a good headline and the illusion that the Government are taking decisive action, but it could be that those cuts are being made up for by increased revenue elsewhere—revenue that comes out of the pockets of the same people who are meant to benefit from the cut in the first place.

This debate cannot really happen in isolation and away from the influence of the Treasury, and we must be realistic and acknowledge that it will always be the primary driver of these decisions, given the huge amount of revenue that fuel duty brings in. Sooner or later, however, the debate must move on from whether we take off 2p here or add 2p there, because if we are to meet our net zero targets and move away from reliance on fossil fuels, we must also move away from reliance on taxing those fuels that we currently tax. At the heart of this is a complicated dilemma about moving to a similar fuel duty system for electric vehicles, which may disincentivise people to change. If instead we decide to tax people by the mile—I know that has been suggested in some quarters—that may disproportionately impact some communities, as well as removing one of the major reasons for investing in an electric vehicle in the first place.

There is also the question of whether the infrastructure is in place to make reliance on electric vehicles realistic. I certainly see that in my area there is a long way to go in order to get a comprehensive charging structure in place. We know that many properties—some say at least one third, and possibly even higher—are not, and never will be, suitable for home charging. With the differential VAT rate for charging at home and at a filling station, that is a major inequality that needs addressing. I would suggest that it needs addressing now, before the tax taken from it becomes so high that it becomes impossible for us to wean ourselves off that too.

Those are debates for the future, however, and we now need more effective and rapid ways of putting more money into the pockets of those who need it the most. As I have said, the best proposal I have heard so far is the windfall tax, and with this being a debate on the cost of living crisis, it is very disappointing that not one Government Back Bencher has come to speak about this issue. It shows, I am afraid, just how out of touch the Conservative party is.

[Peter Grant (Glenrothes) (SNP)]

I am pleased to begin summing up this debate. Like the hon. Member for Ellesmere Port and Neston (Justin Madders), the most striking thing about it is that out of around 350 Conservative Members of Parliament, not a single one wants to come and defend the Government’s woeful lack of action on this element of the biggest cost of living crisis that most of us have ever seen—hopefully it is bigger than any that most of us will see again.

I recognise, the SNP recognises, and the Scottish Government certainly recognise, the need to move away from our dependence on fossil fuels. The Scottish Government’s record on the promotion of renewable energy stands up to comparison with anyone else in the world. It is a record that I am proud to have played my own tiny part in, as a former council leader. The simple fact remains, however, that for the foreseeable future we will still depend on petrol or diesel-powered vehicles for a lot of our everyday travel, public transport, and the delivery of goods on which our economy and communities depend. We cannot simply say that the way to deal with crippling increases in the prices of diesel and petrol is to stop using our cars, buses or trains that rely on diesel or other fossil fuels.

There is a massive contradiction here, in that Scotland remains one of the world’s largest producers of oil and gas—we are one of the most fuel-rich countries in the world. How can it be that a supplier country gets poorer when the price of the commodity goes up? Somebody, somewhere, is ripping Scotland off, and I have a pretty good idea as to who that might be.

How can it be, as the hon. Member for Ellesmere Port and Neston asked earlier, that his constituency, which is beside a major oil refinery, has to pay more for fuel than, for example, parts of London? The hon. Member should try looking at the price in the places where fuel is actually produced, and sometimes at the places where it comes ashore, because people in a lot of the more remote parts of Scotland get a double, or even triple, whammy. They have higher fuel prices to begin with, which is ridiculous when they are closer to where the fuel is produced than any of the rest of us, and because they are in sparsely populated areas, they must travel longer distances to get to school, work or a doctor’s appointment. Things that in a city such as Glasgow, London or Edinburgh can be done by walking half a mile, can be a two-hour journey in some parts of the highlands of Scotland. Although the roads might be in a decent condition, they are certainly not designed for fast, constant-speed travel, so fuel consumption per mile on those roads is vastly greater than on roads in more densely populated areas.

That might be why it is noticeable how many dark colours there are towards the north end of the map on the page of the petition. My constituency is uncharacteristically dark—the last time I checked, Glenrothes and central Fife had 224 signatories. My constituents do not tend to get all that excited about Parliament’s online petitions, so that number is quite high. I guarantee that I have had at least that number of emails—probably more—about the fuel-price crisis, and the general cost of living crisis in just the last few weeks, never mind in the months that the petition has been live.

It is important to emphasise that a massive increase in the price of fuel means a massive increase in the price of everything else. Almost everything that we buy in the shops was delivered in vehicles that rely on fossil fuels. Although I welcome the much greater use of electric vehicles by some distribution companies and hauliers, and the attempts by some to introduce hydrogen fuels, the vast majority still rely on diesel to get food to supermarkets. If hauliers cannot afford fuel costs, prices on supermarket shelves will go up even more than before.

[Helen Morgan (North Shropshire) (LD)]

Does the hon. Gentleman agree that some hauliers are unable to pass increased fuel costs on to supermarkets, which have so much purchasing power, and are at risk of going out of business as a result? That puts our supply chain under pressure and threatens jobs in areas where hauliers are large employers.

[Peter Grant]

The hon. Lady is absolutely correct. Of course, if hauliers manage to pass those price rises on to supermarkets, the supermarkets get together and pass them on to the customers, which adds even further to inflation. The general answer to that point is that the United Kingdom’s food-distribution system is broken beyond repair. This is not the debate in which to discuss that, but the last few years have made it clear that that system is not fit for purpose and needs to be changed radically and quickly.

The Government’s response to the petition contains all the usual platitudes, and I look forward to the Minister repeating them when she gets to her feet. The response points out that the Government do not

“set the prices paid at the pump… The degree to which petrol pump prices respond to changes in crude oil prices is a commercial matter.”

Why? Is it not time that the Government started regulating the price of fuel at the pump, even temporarily, in the same way that they regulate—not all that effectively—domestic electricity and gas prices? If we know that somebody, somewhere is profiteering, is it not time for a regulator that can insist on the kind of open-book approach that the hon. Member for Ellesmere Port and Neston mentioned, so that we can identify where the profits have been made, and what parts of the supply chain are struggling? The few remaining independent fuel-station operators in the UK are seriously struggling. I do not think they are the ones that are profiteering, but somebody quite certainly is.

The Government’s excuse on the rate of VAT is extraordinary. Their response states that exceptions to the standard rate are possible, but

“these have always been limited by both legal and fiscal considerations.”

What legal considerations are those? The Government might have tried to use the excuse of “the Europeans won’t let us do it”, but as the hon. Member for Gower (Tonia Antoniazzi) pointed out, the Europeans seem to let everyone else do that, and it was just Britain that could not find a way of doing so within the limits of European law. We are not in the European Union any more. What has happened to taking back control? It is not Europe’s fault now—it never was—and the Government can no longer pretend that it is. They cannot pretend that it is anybody’s fault other than their own.

The Government also point out that there are “fiscal considerations”. We know that, but where were those fiscal considerations when the Government decided to spend massive amounts of public money on a scheme to deport people to Rwanda? To date, that scheme has not deported a single person—thank God. The Government cannot even tell us when—if ever—that scheme will have its desired impact of disrupting the business of people trafficking across the channel. When things will get the Government a headline on the front page of the Daily Mail, they can find the money, and “fiscal considerations” are suddenly not that important.

In January 2020, before the start of the pandemic, the average UK price for a litre of unleaded petrol was slightly more than £1.27 per litre, and the Government took 79.1p of that in tax. In April 2022—after the Government’s very generous new fuel duty price—the typical price was up to 161.7p per litre, and the Government’s tax take was 79.9p. Despite all the crowing about cutting fuel duty, the Government are taking more tax from the customer than before. As my hon. Friend the Member for North Ayrshire and Arran (Patricia Gibson) pointed out, a significant part of the tax on fuel is VAT, which is a percentage of the net cost plus 20% of the duty added back on again.

Prices have now got so bad that energy firms are warning that 40% of their customers could plunge into fuel poverty before the end of the year. This is in the week the Chancellor tweeted that it was nice to see the economy still growing—in that tweet he copied numbers that told us the economy was shrinking. That was in National Numeracy Week, which I thought was quite appropriate. The Tories response to the general cost of living crisis seems to vary from, “Get a second job,” to, “Learn how to cook.” How utterly offensive that is to my constituents—to all our constituents.

It never takes the Government long to come up with a scheme that they think will get the headlines they want in the newspapers they want. If the political will was there, they would have already come up with a scheme. Whether that was a duty or a VAT regulator on a sliding scale, so that it reduced as the underlying price increased, they would have found ways to either permanently or temporarily reduce the tax burden on the fuel at the pump. They would have started making noises about regulating the price of fuel in the same way that they regulate the price of domestic electricity and gas. I bet if the Government started seriously to talk about regulating the price of fuel at the pump, the industry would sort itself out pretty quickly. The one thing that the big oil companies do not want is the public being allowed to see just how much of a profit they make at the expense of our hard-pressed constituents. They are allowed to make those excessive profits with the consent, and possibly even the connivance, of a Government that simply do not care.

--- Later in debate ---

[Helen Whately]

The hon. Member comes to exactly the next point that I was going to make in my speech. The petition called for a VAT reduction, as did the hon. Member for North Ayrshire and Arran (Patricia Gibson) when she intervened. Given that VAT is applied on top of fuel duty, the 5p duty cut on petrol and diesel also results in a VAT reduction. It effectively translates to a reduction of 6p per litre overall. That said, a VAT reduction is not generally the best way to provide help with fuel costs, particularly because it would not help many businesses, many of which already claim back VAT paid on fuel for business use. About 40% of fuel is used by businesses. If we had just focused on reducing VAT instead of fuel duty, that would have left businesses more exposed to fuel price increases, in turn impacting the cost of goods for consumers. Making the focus fuel duty rather than VAT means that businesses, as well as consumers, will benefit from that tax cut. Also, by helping businesses with the fuel duty cut, we ensure that the duty cut benefit flows through to people who do not own cars, as well as those who do, because of the importance across the supply chain of the cost of fuel.

[Peter Grant]

Did I mishear the Minister? Is she trying to persuade us that if we cut VAT on fuel, it will lead to an increase in costs to the customer somewhere else? Is that what she is trying to say?

[Helen Whately]

That is not what I just said; I said that if we particularly focused on reducing VAT on fuel, that would not result in a saving to many businesses, because businesses can claim back VAT. By cutting fuel duty, we are benefiting businesses and the whole supply chain, as well as consumers who buy fuel.