Road Fuel Duties

Debate between Robin Walker and Graeme Morrice

Tuesday 13th September 2011 Westminster Hall

[Graeme Morrice]

I do not want to get bogged down in a debate on the constitution or the whole question of more powers for the Scottish Parliament. I certainly support the Scotland Bill, which we have been discussing, and fiscal autonomy for Scotland—but not independence, of course.

[Jim Dobbin in the Chair]

The impact has also been felt by retailers, with Asda stating last month that its customers were cutting back on trips to its stores because of high fuel prices. It estimated that families have, on average, £9 less disposable income each week compared with this time last year, largely due to increased petrol costs. So there is absolute agreement about businesses needing more help with high and rising fuel costs.

The all-important question is what can be done with road fuel duties to reduce the pressure on businesses and individuals and to bring about a halt to spiralling price rises. Fuel duty accounts for more than 60% of the pump price of petrol and just less than 60% for diesel, with VAT on top of that—the highest percentage of duty in the European Union. While the anger and frustration of individuals at suffering such high duties are understandable, once again the major concerns that business has are also clear. How can we expect businesses to compete on a level playing field with European competitors when they face such high taxes and duties?

When the Government increased VAT to 20% in January, they contributed to a further hike in fuel costs. It was the wrong tax at the wrong time, hitting families and businesses hard, just when they were least able to absorb such an increase. I support the calls to look at reversing the VAT increase for road fuel. We know it is feasible to obtain approval at the EU level for such a cut, but the Government refuse to entertain the idea because it is politically inconvenient for them to do so.

In a debate on motoring fuel costs here in Westminster Hall back in June, the hon. Member for Harlow (Robert Halfon) called for a commitment to no more petrol tax rises in this Parliament. He urged the Government to consider abolishing even inflationary rises on fuel duty during the Parliament. Such calls have largely come about as a result of the work of Fair Fuel UK, which is a broadly representative body and is making a strong case for reducing fuel costs for both motorists and businesses.

How do such calls square with the Government’s position? In opposition, the Conservatives made much of plans to “slash fuel duty”, as the headlines screamed at the time, with their fair fuel stabiliser. The concept of fuel duty falling when fuel prices go up and rising when prices fall, seems, on the surface at least, like a winningly simple and effective idea. Many of my constituents certainly believed so and contacted me about supporting it. However, the Office for Budget Responsibility, the Institute for Fiscal Studies and others have raised problems with that approach. It remains to be seen whether the fair fuel stabiliser will deliver what businesses and individual motorists want.

[Mr Robin Walker (Worcester) (Con)]

When the Office for Budget Responsibility looked at the fair fuel stabiliser, it said that one of its fiscal problems was that the benefits to the Government of higher fuel prices were wiped out over time by the harm to the economy. Is that not evidence for intervention, and for the Government to set a lower fuel duty to stimulate the economy?

[Graeme Morrice]

The hon. Gentleman makes an interesting point. I am all for Government intervention in many walks of life, but I would have thought that reducing VAT would be a good start. My hon. Friend the Member for Central Ayrshire made the interesting point that putting VAT on top of the total cost of fuel is a tax on a tax, and the Treasury should look at that.

In summing up, I again thank my hon. Friend for this debate. It will not solve the problem, but I hope that it will at least provide further food for thought about what we can do to find a solution to this most thorny of problems in the longer term, and eventually to bring about a settlement that provides relief for hard-pressed families and businesses. I look forward to the Economic Secretary’s response.