§ Mr. David Steel (Roxburgh, Selkirk and Peebles)
I beg to move amendment No. 7, in page 2, line 31, leave out "£0.0810" and "£0.0920" and insert "£0.0717" and "£0.0837".
§ The Chairman
With this it will be convenient to take amendment No. 23, in page 2, line 31, leave out '£0.0810' and insert £0.0735', and new clause 10—Vehicle Excise Duty—'In the Vehicles (Excise) Duty Act 1971, in the fifth Schedule (both as it is applied to Great Britain by Part V of the Fourth Schedule to the Finance Act 1977 and as it is applied to Northern Ireland by Part V of the Fifth Schedule to that Act) there shall be substituted for "£50" the words "£40 as from 1st August 1979".'.
§ Mr. Steel
What the amendment means in plain English is that we are proposing to alter the rate of excise duty on petrol and Derv in a manner that will 1425 index it to the rate of inflation that occurred during 1978.
By way of preface, I say that it is my party's view that the Chancellor would have been wise throughout the Budget to go for the principle of indexing these various taxes on goods and services, thus spreading the load more equitably than he has chosen to do with the arbitrary increases in VAT and in excise duty and the non-increases in other goods which he has proposed in the Budget.
However, I want to deal specifically with the case on petrol. Quite apart from the general principle of indexation, I hope to show to the Committee that the revenue which, in the Red Book, the Government forecast that they intended to raise by these increases will be greatly exceeded as a result of the increased prices at the pumps that have appeared since the Budget forecasting was done.
There has been a savage increase in the price of both petrol and derv in the last few months. In January of this year the pump price of petrol was 80p a gallon. That included excise duty of 30p and VAT of 8p. Those two taxes greatly increased as a result of the increase in the basic oil price. On the present average pump price of 110p a gallon—I appreciate that it can be more than that—the excise duty as proposed by the Government will be 36.8p. As a result of the increased pump price and the increased excise duty, the 15 per cent. rate of VAT will bring in 14.4p a gallon.
The effect of our amendment would be to reduce the price per gallon by approximately 4p. In the Red Book the Government proposed to secure an increased revenue of £375 million in a full year. Even with the aid of a calculator I found it difficult to work out what the expected rise would be, and perhaps the Minister will give us the Government's accurate and authoritative forecast? The actual revenue increase, however, will be about £600 million unless our amendment is approved, in which case the increased revenue will be about £405 million. That is still in excess of the Government's forecast. Given the increase that has taken place in the price of oil since the original forecasts were made, the Government owe it to the consumer not to take 1426 that extra slice of revenue. They should be generous and give back at least 4p a gallon.
In formulating taxation on petrol and derv the Government have several objectives. First, they have to raise revenue. The revnue on petrol and derv cannot be exempt from the general trend. That is why we argue the case for indexation.
As the Chancellor said in his Budget Statement, the Government also desire to increase people's consciousness of the need to conserve energy, and that was one reason for increasing excise duty more than other duties. There will be an increase of almost 50 per cent. in the pump price of petrol within 12 months, taking into account the statements of the OPEC countries. Against that background it cannot be said that the Government are falling down on their duty to ensure that conservation of consumption is heavily in the minds of the public. That is happening anyway. People will not rush to be spendthrift in the use of petrol and derv if they go down by 4p a gallon.
The Government have a duty to raise revenue and ensure that the needs for conservation are firmly in the public mind. They also have a duty not to raise unnecessarily the basic cost of living in areas where petrol and derv are the necessities of life. We criticised the previous Government's 5 per cent. imposition on petrol tax. Our justification for that criticism equally applies to this Government's proposals. No Government have yet accepted that the consumption of petrol and derv is a necessity in some areas although it may be classed as a luxury in others.
The Government must reassess vehicle excise duty and the duty on fuels. Until they do so it will not be possible to meet the needs of areas where the cost of petrol is a high component in the cost of travelling to work and moving goods. It is difficult for me to justify to my constituents the fact that the price of such luxuries as drink and tobacco will not be substantially increased but that the price of a necessity like petrol will be savagely increased by the Government on top of the other increases that have occurred. I do not believe that any Minister would care to defend that piece of discrimination to my constituents.
I hope that the Government will move towards the concept of regionalisation in 1427 these taxes. There is discussion between the Chancellor and the Minister of Transport on whether to proceed with the previous Government's intention to phase out vehicle excise duty. The important question, however, is whether the Government will consider a real conservation policy by varying the excise duty if it is to be retained according to the size of vehicle or using the mechanism of petrol excise duty to vary it regionally. That is possibly less easily evaded and may be preferable. One way or the other, the Government must tackle the problem.
§ Mr. Dalyell
Is the right hon. Gentleman saying that through the mechanism of excise duty petrol should be cheaper in, for instance, Hawick than in Edinburgh?
§ Mr. Steel
At the time of the Budget two years ago the argument was that petrol was considerably cheaper in Edinburgh than in Hawick. I am not arguing that it should be cheaper in my constituency than in big cities, but in areas like Hawick where it is a necessity it is already dearer than in the cities. That situation is intolerable. It is dearer because the oil companies conduct price wars in the big city centres with massive reductions for the volume of sales and they are not able to do that in the small towns and villages. It is a crazy policy to have cheap fuel available for private cars in the big cities and expensive fuel where there is no public transport and a private car is necessary for people to get to work.
§ Mr. Russell Johnston (Inverness)
Further to the intervention by the hon. Member for West Lothian (Mr. Dalyell), is my right hon. Friend aware that there are many areas in the Highlands where petrol is 15p a gallon more expensive than in Glasgow or Edinburgh?
§ Mr. Steel
I am aware that my constituency is not by any means the worst hit, compared to, for instance, Caithness or the constituency of my right hon. Friend the Member for Orkney and Shetland (Mr. Grimond). The cost of fuel is an increasingly major contributory factor to the high cost of living the more remote people are from urban areas. I repeat that the problem has not been tackled by any Government. The amendment does 1428 not tackle it directly, but until the Government make petrol cheaper in the areas where it is a necessity and more expensive where it is a luxury, instead of its being the other way round, they cannot expect the House to vote large increases in excise duties.
That is the burden of the case that I put before the Committee.
§ Mr. John Bruce-Gardyne (Knutsford)
I have heard some fairly nutty causes advocated by the Liberals over the years, especially in the economic field. They never cease to amaze me. The Liberal leader argues this nutty cause with rather more charm than the former Member for Cornwall, North, Mr. Pardoe, but that fact does not make it any less nutty. The Liberals were nuts about incomes policy, and they were nuts about indexation. Now the Liberal leader has this bee in his bonnet about regional petrol taxation. I agree with the implications of the intervention of the hon. Member for West Lothian (Mr. Dalyell). We would be landed in a pretty pickle if we followed the path of the Liberal leader, and I urge the House to resist the amendment.
The purpose of the amendment—there is no denying this—must be to stimulate consumption of a resource that the world is trying to conserve. If that is not the purpose of the amendment, it has no purpose at all.
The right hon. Member referred to the increase in VAT on spirits and tobacco as "a marginal impost". That was not the impression that I got from the debates yesterday. If the change in this amendment has any purpose at all it must be, by definition, to try to increase petrol consumption.
§ Mr. Bruce-Gardyne
It is no good the right hon. Member shaking his head. There cannot be any other conceivable reason for the amendment.
§ Mr. A. J. Beith (Berwick-upon-Tweed)
Would the hon. Member explain how one of my constituents who drives with three passengers the 12 miles each way to work and back in a low petrol consumption car can possibly make any further reductions in his consumption?
§ Mr. Bruce-Gardyne
I was coming to that point. I agree that this is a serious 1429 matter for those of us who represent rural constituencies where the car is often the essential means of transport. However, I do not see how we can attempt to shield the motorcar user, wherever he may live, from the effects of a period—and I believe it is only temporary—of oil shortage. The best way to return to a position of balance, or even modest surplus in supply is to allow the price mechanism to operate, and not the least part of this is the taxation taken by the Government.
§ The Temporary Chairman (Sir Stephen McAdden)
Order. We cannot have three hon. Members on their feet at the same time.
§ Mr. Bruce-Gardyne
I am just ending my remarks. I am sure that hon. Members will have their chance to make a contribution. The only purpose of the amendment is to increase the consumption of a scarce commodity. We should not be doing such a thing in this Budget. We should not deny the Government revenue and thus increase the already rather large public sector borrowing requirement. For these reasons I hope that my right hon. and hon. Friends will resist the amendment.
§ 6.15 p.m.
§ Mr. Horam
In reply to the hon. Member for Knutsford (Mr. Bruce-Gardyne) I must point out that the only consequence of adding a tax increase of 10p to the petrol price would be to increase the peaks and troughs caused by market forces. The only sensible policy to pursue is to try to level out the peaks and troughs and not have them accentuated by arbitrary taxation changes.
However, I do not propose to follow the hon. Member for Knutsford and I shall address myself to amendment No. 23 and new clause 10 which are combined with the Liberal amendment No. 7. The increase in petrol taxation at this time is an unnecessary imposition. It was a decision that was reached in haste and will be repented at leisure because it will make all our problems of inflation and recession very much worse and it will cause additional difficulties for the lower paid.
Of course, from time to time we must increase petrol taxation in this way. If this must occur, it is sensible to decrease the rate of vehicle excise duty simultaneously. 1430 I shall explain the arithmetic of my amendments. As the Committee knows, the last Government were planning to make a switch from vehicle excise duty to petrol tax. The effect of new clause 10 and amendment No. 23 is to take the first step in that direction and reduce vehicle excise duty from £50 to £40. This will cost the Government about £170 million in revenue. Therefore, amendment No. 23 increases petrol tax by just a sufficient amount to offset this revenue loss from VED. In fact, I have been rather generous to the Revenue because I have not taken account of the consequential VAT which gives the Inland Revenue slightly more than it deserves. To the ordinary consumer the increase in the petrol tax would be roughly half what is proposed. It would be reduced from 7p to 3½p. This amount springs directly from the increase in excise duty.
The main argument put forward by the hon. Member for Knutsford was that we should consider the wider issues of energy conservation, and of course that is right. It was in these terms that the Chancellor introduced this change. One cannot dissent from that. But it is right to make the change now taking account of all serious considerations? Is it right to make such a hefty increase in the middle of the second biggest rise in petrol prices in the post-war period?
Let us look at the course of petrol price increases over the past six months. At the end of last year and the beginning of this year four star petrol was obtainable at from 75p to 85p a gallon. That was a low price compared with that obtaining in most of Western Europe. Traditionally we have always had lower prices than other countries in Europe where petrol prices then ranged from £1.12 to £1.40 a gallon. Since then the price has risen steadily. It went up to 98p for four star just before the Budget, and there was another increase of 3p almost simultaneously with the Budget increase. These steep increases reflected the change in price of Middle East crudes and the premiums associated with them. At the same time, we should have been aware, from close examination of the OPEC scene, of what the result of such changes would be. As we know now, they led to increases of between 6p and 9p on four star petrol.
1431 Therefore, without the Budget changes and the 10p increase, there was an increase in petrol prices, arising from the market forces alone, of from 75p to—at least—£1.08. That occurred over a period of less than six months. The Government have stated clearly that they consider that the increases are appropriate. They believe that the supply shortages should be left as they are and that the prices should take the strain. That aspect of their policy should be considered when we examine the changes in taxation.
In the middle of all those increases and a policy on energy that is deliberately designed to allow prices to rise and to be carried through to the consumer, the Government have increased the price of petrol by 10p per gallon. The Prime Minister was questioned about that at Question Time by my right hon. Friend the Member for Cardiff, South-East (Mr. Callaghan). The right hon. Lady repeated the argument that has been put forward by the Chancellor that the object is to restrain demand. However, if prices do restrain demand in the way that the Government hope, is not OPEC already doing the job for us? Why is it necessary to accentuate an already steep price rise with a further self-imposed tax increase?
The hon. Member for Knutsford said that he believed that oil prices would fall. In that case, is it not further madness to accentuate the peak of a change in prices by adding a further lop increase? Would it not be correct, to use the terms of the hon. Gentleman, to allow market forces to work their way through without the intervention of a further arbitrary increase in petrol taxation? In its own terms, the Government policy makes no sense.
I believe that the increases have flowed from the internal logic of the Budget—as has been the case with many other changes that the Committee has been discussing. The Government had to keep the public sector borrowing requirement at the level at which they wished it to remain and, at the same time, they were committed to reducing the standard rate of income tax by 3p. To bridge that almost impossible gap not only was VAT increased to 15 per cent. but the 1432 steep increases in excise duty on petrol were necessary. That is the cause of the present problem.
The Government decided that rather than increase excise duty on cigarettes or spirits—a more logical choice, given the need to consider the budget of the ordinary person—they would, for energy conservation reasons, increase the duty on petrol. Once again, the Government have looked at the narrow taxation points and they have failed to see the overall economic context of the Budget—"Lord Barberism" gone mad, once again.
I made my maiden speech in 1970 in the debate on Lord Barber's Budget. He made the same mistake: he looked purely at the tax consequences and failed to see the overall economic context of his actions.
§ Mr. F. A. Burden (Gillingham)
Was it not the Labour Government who wished to abolish the road fund tax and replace it with a tax on petrol? Would not that have resulted in a considerable increase in the price of petrol? Those in rural areas would have suffered particularly as a result of that change.
§ Mr. Horam
That move would have meant an increase of 20p in the price of petrol over three years. However, it would have been offset by the elimination of the vehicle excise duty of £50. I believe that the ordinary person would rather pay as he goes and buy his petrol rather than pay the lump sum of £50. That is a large impost on an ordinary person's wage. Therefore, I do not accept the hon. Member's argument.
The net effect of this maladroit move is to add to inflationary expectations, to compound the recessionary trends which beset us, and to cause additional social hardship. An increase from 75p to £1.10 in the price of petrol is sufficient to cause the retail price index to rise by more than 1 per cent.—it will be about 1.2 per cent. In addition, there is the petrol tax increase which causes a rise in the retail price index of about 1.4 per cent.
The Automobile Association calculates that the combined effect of VAT and petrol duty increases will be an addition to the cost of running the ordinary motorist's car of about £2 per week. In the 1433 previous Parliament I was a junior Minister in the Department of Transport and I was somewhat suspicious of estimates by the AA. It tends to exaggerate the effect on the ordinary motorist, but if that estimate is halved arbitrarily that still leaves a substantial increase in the cost of living. I calculate that the increase in excise duty, leaving aside the VAT increase, will mean that the ordinary motorist will pay between 50p and £1 extra per week on the cost of running his car.
Some hon. Members have raised the problem of rural areas. That matter has been raised in the debate by the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel). Rural motorists have no choice about the matter and they cannot escape the cost of petrol. That point was made strongly by the present Chancellor of the Exchequer in the Finance Bill debate of 1977. In referring to the 5p increase he said:This is a selective tax … it is deliberately biased against those who have no option about the method by which they travel to work. It is deliberately biased against those living in rural areas. It is deliberately designed to have precisely the wrong effect on the reverse yield gap between going to work and staying at home."—[Official Report, 9 May 1977; Vol. 931, c. 937.]I wonder what the Chancellor thinks about that matter now, when he has doubled the increase that was proposed at that time.
That describes the clear social effect of the change; and added to that will be the economic effects. I believe that the increase will deflate demand, worsen the inflationary psychology and—whatever Conservative Members may say—it will add to the pent-up pressure for wage claims. It will be yet one more matter to be quoted throughout the course of the next 12 months as justifying further wage claims. I am sure that it justifies those claims.
A further danger is that if some of the OPEC countries realise the move that has been made by the Government after they have imposed their increases, they will argue that we must believe that we can withstand further increases because we have added to their already large increases. That places us in a difficult position to argue that they should not impose further increases in the future. On all the grounds that I have mentioned, 1434 I believe that it is a thoroughly bad move in the present economic circumstances.
I hope that the Treasury Bench will address itself to the question of how far the increase in prices will cut consumption. I hope that the Minister will comment upon that when he winds up the debate. That point is implicit in the comments about rural areas of the right hon. Member for Roxburgh, Selkirk and Peebles. The Daily Mail recently ran an article that showed that there was a 6 per cent. rise in petrol usage since last year, despite the price increases. A Department of Energy report in 1977 on energy elasticities showed that business use carries on unaffected by higher prices and that private use is little affected. The private motorist tends immediately to be more conservation-minded, but that is soon forgotten and the demand continues to grow. Therefore, the price elesticity is low.
On this occasion it may be different. We do not know. I hope that the Government will say something about that—it may be that they do not know. I believe that the measure will cause an increase in the cost of living with no or little effect on energy conservation. The Government should have examined the matter before they decided on the precipitous and large increase. A proper fiscal regime is needed for petrol and it should be based on information about the relationship between consumption and demand and supply and price. We do not yet have that from the Government.
Therefore, I repeat the plea of my right hon. Friend the Leader of the Opposition at Question Time recently that the Government should consider the increase in the light of the course of petrol prices since it was imposed. It does not fit in with that trend, and it is clearly seen as exacerbating the problems that ordinary motorists and the country as a whole face.
If the Government will not do that, will they at least do what we also propose, which is that they look again at the level of vehicle excise duty? That would have the great advantage of allowing the increase in the price of petrol, and all the attendant possible conservation aids, to work its way through without affecting overall motoring costs. That would be 1435 a better way of taxing the motorist, because it would tax him as he used his car, rather than putting on him one impost of £50 a year or a smaller impost three times a year. It would also help the man who did a low mileage or who had a car that was economical in the use of energy.
That point was made by the hon. Member for Tiverton (Mr. Maxwell-Hyslop) in the 1977 debate, when he said:I would not have objected to the increase in fuel tax if it had been a substitute for vehicle excise tax."—[Official Report, 9 May 1977; Vol. 931, c. 960.]That is precisely what my Government were proposing. It had much to commend it for the ordinary person and for the general energy strategy. It would also mean a great simplification and would save a great deal of bureaucratic time. I should have expected that argument to commend itself to the Conservative Party, which is seeking to cut a swathe through the numbers of our civil servants.
I was rather surprised when the now Minister of Transport came out so strongly against the proposal. The papers suggested, on the basis of his initial remarks, that he would reverse our policy. Then he went full speed backwards. It seemed plain that he was reversing his initial view because he had been got at by someone in the Treasury who had seen the advantages of our proposal. I thought that the proposal had a fair amount of bipartisan support, and I was surprised that he did not understand that.
I hope that when the Minister of State replies he will tell us what are the Government's intentions for vehicle excise duty. There have been vague statements, with contradictory reports in the Press about the Government's intentions. The Minister of Transport seems to believe one thing and other members of the Government are reported is believing other things.
There are important issues at stake, and not simply the question of the future of the Driver and Vehicle Licensing Centre at Swansea. There are all the larger questions of the transition, energy costs and the effect on the ordinary motorist. Therefore, I should like to hear from the hon. and learned Gentleman when the 1436 Government expect to announce their intentions on the duty.
Our proposal had the merit of a logical approach, which is what we are seeking here. It would have allowed energy matters to work their way through satisfactorily, without causing undue hardship, and would have allowed the Government to do the economically sensible thing, without penalising ordinary people too much. That is the job of Government. The present Government are doing exactly the reverse—putting a harsh impost on ordinary people, without there necessarily being any energy benefit, and certainly with a bad economic effect.
I hope that on these grounds the Government will reconsider their approach.
§ Mr. Patrick McNair-Wilson (New Forest)
The hon. Member for Gateshead, West (Mr. Horam) was a member of a Government that had an equally bad record in this matter. I regret that the present Government show every sign of having a bad record. I believe that we are getting the whole question of taxation on fuel wrong.
The Leader of the Liberal Party must also recall that as a result of his party's amendment to a previous Finance Bill, which brought about a reduction in the price of petrol, diesel oil became more expensive than petrol. Yet we are always told that it is with diesel oil that the internal combustion engine should be fuelled, because it is more efficient. No party comes out of this discussion smelling of roses.
I do not like the suggestion of the hon. Member for Gateshead, West that we should abolish vehicle excise duty and dump the whole cost on petrol. Why should it all be dumped on petrol? It is unfair that the motorist should always be the one who is clobbered in any such changes. I dispute the hon. Gentleman's figures suggesting that it would cost only between 50p and £1 a week for the average motorist. That would certainly be the equivalent of the £50 licence, but I believe that the figures from which he quoted are in no sense a reflection of the new prices that are having to be paid by the motorist at the pumps today.
All of us who represent rural areas know very well that motorists are committed to substantial mileages, whether 1437 they like it or not. They would be badly hit by such a change.
During the debate on the Loyal Address I warned my right hon. and learned Friend the Chancellor of the Exchequer not to touch fuel tax, for the simple reason that the price increase would be made for him by the major oil suppliers of the Middle East. Perhaps I may declare a past interest. I know the Middle East quite well, as for some years I was a director of a company trading in the area. As Sheikh Yamani said recently, there will be pressure on the oil-supplying States in the Gulf from the new Iranian regime and its newfound friends in the Palestine Liberation Organisation to reduce supply to the West. As the supply dies down, so the prices will rise. Therefore, I do not believe that we require the Government to add additional costs, with great respect to my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne).
Is there any limit to how much the Government are prepared to add to the cost of fuel? It can be continually argued that every penny added to the price means saving some more, but I believe that the benefits claimed are totally illusory.
I once worked for a business that dealt with the cigarette industry. I think that I know something of the habits of smokers. I no longer smoke, but I know, as we all know, that the day the price goes up because of a Budget everyone says "That is the end of smoking for me." In a few weeks' time everyone is back at it again, and probably smoking even more. I predict that the rise in the price of fuel at the pumps will make no difference to the demand.
§ Mr. Bruce-Gardyne
My hon. Friend will be aware that there has apparently been a 6 per cent. drop in consumption at the pumps over the past four months. If that does not reflect price, what on earth does it reflect?
§ Mr. McNair-Wilson
That is an interesting point. I am surprised that someone as wise as my hon. Friend should be taken in by such figures. I defy anyone to compute on the basis of a price increase the drop in consumption. There has been a shortfall in delivery to the refineries, and as a result there has been a drop in consumption.
1438 I return to my point that demand will be restricted for us by the supply. There is no need to put on artificial figures in this country. The supplying nations will restrict supply, and demand will have to be tailored to fit.
I dispute the figure of 6 per cent. given by my hon. Friend. I saw a figure of 4 per cent. in one of the evening papers yesterday. I defy the Department of Energy to explain how, as a result of increasing fuel costs, demand has been reduced.
I of course understand the philosophy behind what the Government are doing, but I believe that it is a bogus philosophy. I believe that this country and the whole of the developed world now require fuel for their general way of life on such a scale that doing what my colleagues in the Government have done can have only one ultimate result. That is to drive up prices all round. It could be argued that, if prices rise as a result of transport costs rising throughout the economy, we should be prepared to pay that price for making energy savings. This is not how we should approach energy saving. We should encourage the motor manufacturers and others to provide equipment that uses less fuel. We should not continue on both sides of the House to tackle this problem in the same old boring way.
§ Mr. Nick Budgen (Wolverhampton, South-West)
Will my hon. Friend explain how he proposes to encourage motor manufacturers, except through the price mechanism? Has he in mind some kind of subsidy or grant?
§ Mr. McNair-Wilson
I thought I had explained this matter by pointing to those who have queued for petrol in the last few weeks. I make no secret of the fact that until recently I was driving a great gas-guzzling, six-cylinder motor car that held 20 gallons of petrol. It was a very fine motor car—a British motor car. It was one of the finest products of the British motor industry, namely a Jaguar. I now drive a tiny British motor car of four cylinders, with a cylinder capacity of 1,600 cc, which holds eight gallons. I can now drive round the roads of this country without the terrible fear that I will run out of fuel. That sort of consideration will determine the type of 1439 vehicles the motor industry produces. The industry will tailor its product to the demand. The number of people wanting to drive large gas-guzzlers, except those driving business cars, will decline.
The hon. Member for Gateshead, West made a valid point. A report has shown that 70 per cent. of new motor cars are bought by businesses. The idea, supported by some of my hon. Friends and presumably by Labour Members when their party was in Government, that the private motorist will determine whether we save energy is shot to pieces by that report. The company motorist is not restricted in the same way as is the private motorist. He is not paying for petrol in the same way. He will not be so price-sensitive.
The argument is not one of energy conservation. It is whether one wants to collect more taxation in this way. If the answer is "Yes", the question arises whether one is prepared to see inflation rise by a comparable amount. This question goes to the heart of the matter, whatever subject, including the abolition of the vehicle excise licence, is discussed. The motorist has been bashed hard enough. We should leave the additional impost on motorists' essential fuel out of our discussions about energy. It will not solve the problem. It may make the problem worse.
§ Mr. Norman Buchan (Renfrewshire, West)
I talked yesterday on a similar theme in relation to value added tax. I should like, however, to pick up some of the points that have been made. First, there is the curious controversy between the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) and the hon. Member for Knutsford (Mr. Bruce-Gardyne), and the astonishing situation that the right hon. Member for Roxburgh, Selkirk and Peebles displays a total conversion away from the virtue of spending taxes. The policy of the Liberal Party over the last 12 months or two years has been to shift the balance of taxation on to spending taxes.
§ Mr. Buchan
We now see the understanding that has penetrated even the Liberal Party. The Budget is so clear in 1440 its implications and its unfairness that even that party is converted.
§ Mr. Steel
The hon. Gentleman knows that he is being unfair. We have stated consistently throughout the proceedings on the Bill that we believe in making the switch. We believe that it should take place in an orderly and progressive way over the years. I argued in favour of indexing this process. We are not saying that there should be no increase. Our amendment proposes to index it. We propose that the other duties should also be indexed.
§ Mr. Buchan
There is another reason. Liberal Members all represent rural constituencies. They understand the implications of the Budget. All we know is that this new Liberal proposal will be indexed. This will only be a start if the Government get away with the colossal increase in indirect taxes in this Budget. Who knows how much further they may advance?
The hon. Member for Knutsford, who wrote a notorious article in The Daily Telegraph, argued that the only possible purpose of the Liberal amendment or the Labour amendment was conservation. Does this mean that his entire argument in The Daily Telegraph, which was based entirely on the virtues of indirect taxes, goes out of the window? Is he saying that the tax must be applied to conserve fuel? Is he putting that case in saying that the right hon. Member for Roxburgh, Selkirk and Peebles was arguing the opposite? It is a nonsense. We discovered from The Daily Telegraph, more so than we have discovered from the Government Front Bench, the rationale of the shift to indirect taxation and the cuts.
The first indictment of these proposals is the curious fact that they are both deflationary and inflationary. They are inflationary in adding to every single cost of the normal consumer. They will shove up the retail price index. They are deflationary because the economy will be clobbered. To bring in this double effect at a time when we are facing an oil price crisis compounds arrogance and error with stupidity. I should have thought that on this matter at least the Government would think twice.
1441 I want to look at the inflationary objections. This is not an evenly based inflationary concept. Like the other indirect taxes, it is directed most against the poor. Those who are less well off will have to pay more. That is true whether they can afford to be motorists or not. It will add to the price of every single essential product. By definition, those on low wages have to pay a higher proportion of their income than those who are well off for what they purchase. As with the general concept of value added tax, nothing can conceal the fact—based on the tax gap to which my hon. Friend the Member for Gateshead, West referred—that this is an addition to VAT in a different way. The petrol bought by the motorist will already have been increased by the tax, so that the value added tax on top of his total costs will be greater because of the petrol tax inclusion in it.
The Government promised during the election that they would not double value added tax. They have pushed up the tax from 8 per cent. to 15 per cent. One wonders whether the petrol tax now placed on every commodity for which the motorist pays through petrol costs is not the missing 1 per cent. in pushing up the figure to 16 per cent. If the Government increased value added tax on petrol, they would now have an additional petrol tax. They may have done the impossible. They have done what the Tory Party said it would not, and could not, do.
I want to deal with the argument of choice. Choice in relation to indirect tax is, in general terms, nonsense. One remembers the argument before the Budget and during the Budget about leaving people more money in their pockets by cutting direct tax. The petrol tax and the value added tax are a direct corollary of the cut in direct tax. If the Government had slapped on a wealth tax, there would not have been the necessity for the indirect tax. It is nonsense to argue that this leaves people with more money in their pockets to exercise choice. It was shown to be a nonsense yesterday over VAT and the same is true of this indirect tax, because it is being imposed on everyone, regardless of whether he is a motorist or not.
§ Mr. Burden
Would not this argument apply if the Labour Party had carried out its promise to abolish the excise duty on 1442 cars and increase the duty on petrol? Then, presumably, they would be saying to those who drove the cars "You have saved money on the excise duty; now it is up to you whether you spend it on petrol." The same argument surely applies.
§ Mr. Buchan
It is a very different argument. I do not particularly want to go into it, because I had serious reservations about some of the consequences of that proposal for rural areas, but the proposal was simply an attempt to establish the average motorist's expenditure and to say that, since the individual motorist paid £50 a year, tax at a certain rate would mean that he was breaking even. It was an attempt to put no additional cost on the individual average motorist: it was an attempt to charge him in a different way.
That is a different proposition from retaining the £50 excise duty—let us remember that this Government are retaining it—and slapping on a petrol tax. The question of choice is not even left to the individual. The individual motorist can exercise an individual choice, but not the producer of necessary commodities, because the petrol tax figures in the cost of his commodities through fuel costs. Far from this proposal giving more choice, the argument is an illusion and a lie. In fact, it deprives people of choice.
The Tory Government have achieved something else as well. They have already mobilised against them the female consumer through the shopping basket and the increase in food prices. They have now mobilised the male consumer against them. As was said yesterday, this is the first Government since the war who have shown a total switch in popularity within two months of inheriting office. All other Governments have had a short honeymoon period; this Government have neither had such a honeymoon nor deserved one.
By their taxation policies, the Tory Government have declared virtual war on the poor and the less well off. They have done it in the guise of incentives in direct taxation which by definition cannot apply or be effective for the vast bulk of working people. Such proposals can constitute only a post hoc punishment for working people.
1443 This proposal is unfair and it cuts right across the economic needs of this country—at a period when, goodness knows, we have a sharp enough inflationary crisis because of the world oil situation. I wish to heaven that the Government would think again and apply intelligence, if not ideology, and that they would get back to sanity by removing this tax or accepting the amendment.
§ Mr. J. Enoch Powell (Down, South)
There were ominous signs, even before the Budget was brought in, that the Government were going to claim that an increase in the petrol duty was an application of the market principle or the price mechanism, but I must confess that I would not have thought to hear that heresy propounded in the House of Commons by of all people, the hon. Member for Knutsford (Mr. Bruce-Gardyne).
The imposition of a tax is not the application of the price mechanism. It has nothing to do with the price mechanism. It is a repressive measure, whereas essentially the price mechanism is a creative force.
There are two sides to the working of the price mechanism. When the price of an article rises relatively—that is, when its real price rises—then that, to whatever may be the degree, represses demand, but it also stimulates supply. It stimulates supply because the increase in the price confers a temporary advantage on the supplier or the producer. It creates an inducement both ways—an inducement upon the consumer to consider that form of consumption in comparison with others, but an inducement on the producer or potential producer to produce and to supply more.
There is a strong argument—it was one of the rational propositions, perhaps the only one, that came out of the Tokyo summit—for allowing petroleum to price itself at the supply-balancing-demand point in the internal market, whether or not the external market to which the internal markets eventually are referred is being rigged by OPEC or by anybody else.
If that break-even point between supply and demand at the point of consumption, which is what ultimately tells, rises far enough, no amount of restrictive practices in the Middle East or elsewhere will 1444 prevent further sources of supply from being exploited or the existing sources of supply from flowing more freely—not to mention calling into existence and profitability alternative sources both of petroleum and of energy. That is what the market mechanism is about and that is the justification for it.
But it is not using the market mechanism, any more than riding a bicycle is riding in a coach, to pretend that, by slapping 10p tax on the price of an article, one is applying the mechanism of price and thus bringing about a new equilibrium, a beneficial equilibrium, between supply and demand—for one is not. No doubt one is repressing consumption because one is making the price higher to the consumer, but one is doing nothing whatsoever to bring into the field what ought to be the counterpart—the response on the side of production and of supply.
§ Mr. Robin F. Cook (Edinburgh, Central)
I do not wish to endorse the views of the hon. Member for Knutsford (Mr. Bruce-Gardyne), as I shall make clear if I have a chance to speak, but will the right hon. Member for Down, South (Mr. Powell) relate his argument about the price increase stimulating supply to the facts of the oil situation? It is a fact that for the past five or six years, we have been consuming more oil than we have been discovering each year in new reserves. That is the result not of any price factor but simply of geological exploration failing to find as much as we consume each year. How does the right hon. Gentleman relate that fact of the oil context to the general proposition that he is advancing?
§ Mr. Powell
I do not happen to agree with that, because there is a certain point to which the real price can rise at which sources of supply and production of petroleum which at present are not economic become economic, and there is a certain point at which the pips begin to squeak in the repressive methods which are used, in the new world if not in the old, to control and limit the production of petroleum.
Still, what the hon. Gentleman says, be it true or false, does not meet the argument that I am putting against the equation of a tax with the working of the price mechanism. For let us suppose that in this country, at the price which 1445 would rule without the increase in the duty, there will be a given pattern—which must tend towards the optimum pattern, things being as they are, supply being as it is—in the use, consumption and conservation of energy from petroleum and from other sources. What is the effect then of increasing that price by the addition of a tax?
The effect is that the Government, by choosing to do that, are altering the preference schedule in this country, altering the pattern of energy usage and demand, not in order to correspond with the real world but to meet a fiscal convenience.
The Government are imposing upon the consumer and upon the general pattern of consumption something which is not the consequence of OPEC or of anything in the real world but which is simply the result of an arbitrary decision of Government—the decision to raise revenue in that way rather than in any other way.
It is part of the case against all specific indirect taxes that they distort consumption and production. One can be relatively indifferent to the effects of an indirect tax, if we are indifferent, as we are in the cases of alcohol and tobacco, to the distortion of consumption and production. But we cannot be indifferent to the distortion of consumption and production of one of the major sources of energy. Whatever be the future, we wish to use the economically cheapest sources of energy in what is economically the most effective way.
We prevent ourselves from doing that if we choose to put upon one source of energy a specific indirect tax. So far, therefore, from this increase in duty bringing into force any beneficial economic effect or producing any of the effects of the price mechanism, it is actually working against them. It is bound to work for less efficient use of energy and less efficient application of the petroleum which we would otherwise be willing and able to purchase and to use.
It will do nothing to speed the day—which I and the hon. Member for Knutsford expect rather sooner than other people—when shortage is followed by its inevitable sequel, glut; the day when the consequences of the price rise produce 1446 the rebound which they always do—the overhitting effect—and we find ourselves in a state of over-supply.
Neither the one nor the other is good. But we are not averting the one or the other by increasing the tax precisely at this stage upon precisely this commodity. It is about the most uneconomic choice that the Government could have made in looking for places to obtain the revenue which they felt that they had to make good to offset remissions of taxation elsewhere.
§ Mr. Russell Johnston
I remember my maiden speech in November 1964. It dealt with a 6d increase in petrol tax. That was proposed by the then Labour Government and opposed fiercely by the then Conservative Opposition. A characteristic of the Conservative Party, whenever it is in opposition, is to oppose any such tax increases.
I do not intend to go into the economic theory, since that has been outlined lucidly by the right hon. Member for Down, South (Mr. Powell). I shall make a few remarks about the impact that the increase will have on my constituency, which is the largest in the United Kingdom. To propose such an increase at a time when commercial prices have risen so drastically can only worsen an already calamitous situation.
I made a quick check round the tourist offices in my constituency, as this is the middle of the tourist season. The movement of people to the Highland area from other parts of the United Kingdom is important to the sustenance of the economy in that part of the country. In Inverness, I was told that there was unmistakeable evidence that although it had proved possible to combat the rumours of a petrol shortage, the price increases had hit everybody and hotel bookings were being cancelled.
I spoke to the chairman of the Skye tourist association, Mr. George Campbell. He said that the price increases would put the tin lid on a disastrous season, since they would have a serious effect on the tourist industry. An official in Fort William said that in 10 years he had never known such a season. This had been a disastrous season, and the petrol price increases would make it worse.
1447 There are theories and logical arguments, but that is what happens at the end of the road. The tourist season in the Highlands is short and the position is grave. The Government should consider how to alleviate that position. Instead, they are making it worse.
I speak of tourism first because this is the time of the fat. If those involved in the tourist industry do not make the fat now they will have little to live on for the rest of the year. The impact goes beyond that, however. Those who live in rural areas have been affected savagely by the commercial increases.
Hon. Members have mentioned the proposal made at the tail end of the last Government's period of office to scrap vehicle excise duty and to replace it by a 20p increase in petrol tax. In my part of the world, that was opposed by all and sundry. It was opposed by the Highlands and Islands Development Board and the regional council. All Conservatives opposed it with a unanimous cry. They said that it was disgraceful.
Since January, the price of petrol has increased by about 35p. I forwarded many letters of complaint to the Labour Government. They came under severe bombardment over the suggestion that there should be a 20p increase in the price of petrol, in spite of that increase coinciding with the abolition of the £50 in vehicle excise duty.
We have absorbed a 35p increase, of which 5p or 6p is due directly to the petrol tax. The consumption of petrol and dery is a necessity in some areas. The Government must accept that what they are doing is profoundly damaging to the rural areas.
The right hon. Member for Down, South dealt more effectively than I can with the hon. Member for Knutsford (Mr. Bruce-Gardyne). The hon. Member for Knutsford attacked my right hon. Friend the Member for Roxburgh, Selkirk and Peebles (Mr. Steel) on the ground that our amendment would increase consumption. It is extraordinary that an hon. Member who is noted for his defence of laissez-faire economics should defend an arbitrary increase in tax in this way.
In the last Parliament, the Conservative Party, to a man and to a woman, 1448 supported the Liberal amendment which opposed the 5p increase in petrol tax proposed by the then Chancellor of the Exchequer. The Government are doing exactly the opposite of what they did when they were in opposition.
The price of four-star petrol has risen by 35p a gallon since January. To reduce it to 31p a gallon—which would be the effect of this amendment—would not produce an increase in consumption though it would alleviate the situation for those who had no alternative but to use petrol. The hon. Member for Knutsford could have said, with certain justification, that the amendment afforded blanket coverage to everybody and that while one of the aims of the amendment was stimulated by rural problems it did not seek to differentiate in taking account of those problems. The hon. Gentleman and the hon. Member for West Lothian (Mr. Dalyell), seemed to suggest that there was no point in trying to differentiate. Perhaps it is difficult to do so, but the Government must be pressed strongly to seek ways whereby rural communities can be compensated.
Those are rural communities where public transport is scarce and expensive and where a great many people have to rely on private transport. Both Front Benches must know that the major agency for development in the highlands, the Highlands and Islands Development Board, was actively engaged, with the relevant local authority, the Highlands regional council, in trying to work out a system for regionalising the petrol tax. They sought to effect at least some differentiation in anticipation of the change that the previous Government planned to introduce with regard to VED and a 20p increase in the petrol tax. The need for a change which would bring about that sort of compensation is now surely greater.
Though I have spoken exclusively about that part of the United Kingdom which I represent, my arguments must obviously apply to all large rural areas. We are not just dealing with tourism. We must take into account agriculture. There will be an immediate and direct effect on costs for those in the industry, including travel to work and normal travel, and these conditions will apply alongside the general level of inflation.
1449 I find it difficult to understand why it is necessary to do this at all. If the judgment of the Government was that they required additional income, that income could have been derived from other sources less generally damaging to the community as a whole and specifically to rural communities. Conservatives always pose as defenders of rural areas with problems, but in this case they have caused hardship and damage arbitrarily. I hope that, even at this late juncture, the Government will reconsider their position.
§ 7.15 p.m.
§ Mr. Keith Wickenden (Dorking)
I am new to this place and confess that my feelings of unreality may not be shared by all hon. Members on the Labour Benches. First of all we should look at the facts. A few weeks ago the price of four-star petrol varied between 75p and 80p a gallon. The price is now between 110p and 115p a gallon, and in some areas it may cost 120p. Of that increase, 5p or 6p will relate to the extra VAT that we are now asked to pay. My hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) said that the extra cost of 30p to 35p would result in a 6 per cent. reduction in consumption. Other hon. Members say there will be no reduction at all.
If there is no reduction in consumption it means that we have not yet reached the market price for the commodity. We should ask ourselves what is the basis of our taxation. Should it be based on what we are prepared to pay or on what we earn thereby reducing the amount of money available for more productive investment?
I, too, represent an agricultural constituency, albeit a southern one, and I live in a village that has virtually no public transport. It has no train service and no regular bus service. We can all cut our petrol usage, as, indeed, most of us have done. My hon. Friend the Member for New Forest (Mr. McNair-Wilson) told us that he had stopped using a six-cylinder vehicle and changed to a small car. We can all do that and save 5 per cent. or 6 per cent. of fuel without undue difficulty. I have done it. I have cut my fuel consumption by 40 per cent. in the last few weeks because I think it right to do so. Many others could do the same.
1450 We have all become used to wasting petrol in an era of cheap fuel. The hon. Member for Inverness (Mr. Johnston) spoke of hotel cancellations in his constituency. I have some experience of the holiday market, though in a different area, and that experience is quite the opposite. On the Continent, where fuel costs have for a long time been considerably higher than in this country, holiday bookings are up considerably; that is in spite of fuel difficulties and other problems. I suspect that the cancellation of hotel bookings in Scotland owes much more to the inclement weather of the last few weeks than to fuel costs.
The argument that the increase in VAT will add to agricultural costs is spurious. Agriculture is a zero rated industry. Value added tax on agricultural costs is reclaimable. I do not think that it is denied that 70 per cent. of vehicles in this country are used for business, if that is so, 70 per cent. of all extra VAT incurred on fuel is also reclaimable as an input tax against one's general VAT liability.
It is a simple ideological argument whether taxation should be recovered through spending or through earning. On the Government Benches I believe that there is strong support—I believe at one time that there was strong support on the Opposition Benches—for the idea that taxation was more efficiently recovered through spending than through direct taxation of income. Costs that we are being asked to bear, as individuals, are minimal in relation to the total increase in costs that we have all had to bear during the last few weeks. We can save them very easily by merely cutting back on our consumption. I find the indignation expressed from the Labour Benches on this issue unrealistic.
§ Mr. Peter Hardy (Rother Valley)
I do not wish to be unkind to a relatively new hon. Member of this House, but it is all very well for the hon. Member for Dorking (Mr. Wickenden), who drives a large car, to say that we can all get a smaller vehicle and save fuel. I represent large numbers of people, many of whom already have small cars, if indeed they have cars at all. If a constituent of mine needs that car to get to work, I cannot very well urge him to walk 1451 or to buy a horse. His garden would not be big enough to accommodate a horse, and I hope that the hon. Gentleman will not apply the logic of his approach which would eventually lead him to recommend larger gardens.
This morning, I took part in a phone-in on Radio Sheffield. My hon. Friends will be delighted to know that I discerned no favourable assesment of the present Administration whatever. On that programme, a Mr. Miles said that he had recently driven through Italy and France. He had experienced no difficulty at all in obtaining fuel. Thousands of my constituents have been having a great deal of difficulty getting fuel in Yorkshire, where we have only 85 per cent. of our normal fuel allocation. No doubt Mr. Miles would have experienced difficulty had he been driving in my constituency. But the Secretary of State for Energy and the rest of his colleagues in the Government seem to be suggesting that their energy and finance policies are designed to make it possible for us to avoid the experiences current in other countries.
In that phone-in programme, I said to Mr. Miles that I accepted his experience and description of it, and I pointed out that last week I had been in Stockholm, where there was no difficulty whatever. Moreover, petrol is cheaper there, perhaps because the Swedes have had the good fortune not to have a Conservative Government for a long time.
It is quite irresponsible and not particularly helpful for the Government Front Bench to suggest that Britain is being guided through all kinds of difficulties which everyone else is experiencing when to a very large extent the reverse is true. I do not consider that the Government are justified in assuming, as the Secretary of State for Energy did in the exchanges on Monday, thatIt is not the concern of the Department of Energy to rush around controlling and intervening."—[Official Report, 2 July 1979.]His action is intervention. Adding 5p or 6p to the price of a gallon of petrol is intervention. It is all very well for hon. Members on the Government Benches to suggest that 5p or 6p is not a great deal. The truth is that the Government's action here is an example of great insensitivity.
1452 I turn now to the position in my constituency. Rother Valley has grown enormously in the past decade. Many private houses have been built there during the past 10 years, especially in the period 1967–73. Thousands of people came to live in my constituency, and they came there for three reasons: first, land was relatively cheap secondly rates were extremely low; thirdly, they could commute quite cheaply to the major centres of employment, to Sheffield and other areas because energy costs were low.
We have seen those initial advantages destroyed entirely. People's rates in Rother Valley have risen enormously as a result of the Conservative local government reorganisation. Their mortgage interest rates will go up enormously again as a result of the absolutely absurd policies being pursued by this Government. Now, the costs and experiences which they will face in getting to work will present them with appalling disadvantages and perhaps a great deal of distress. In fact, what the Government are doing will stoke the very fires of inflation which bring this country into great peril.
I believe that the Government's insensitivity in this matter is literally appalling. I suppose that I ought not to complain unduly about that because the political advantages and implications are significant. The people of the rural areas of England who, to a large extent, voted Conservative on 3 May are already bitterly regretting their decision. I believe that the Government will pay for it. I see Government supporters smiling at that, but they will learn the truth on the first occasion when an hon. Member on their Benches sadly departs from us and we have a by-election. I am convinced that in the by-elections which will occur even at local government level during the next few weeks in the rural areas of England, the Conservative Party will pay dearly for this appalling piece of stupidity.
If the Government were to take the long view, if they were to say that the money had to be raised in order to finance sensible alternative policies and developments to cope with the energy shortage which all the world will experience, one might see logic in it. It would be useful if the Minister could tell the Committee that the money which the Government 1453 will raise from this dreadful imposition will be devoted to relevant and sensible purposes, applying at least a glimmer of intelligence to these matters. But thus far the only glimmer of intelligence on this subject from the Government Benches has come from the hon. Member for New Forest (Mr. McNair-Wilson), who revealed how at least some responsibility and imagination ought to be applied to this problem.
If, for example, the Government Front Bench were to say that the energy implications for British agriculture were extremely serious and we ought to begin to see a change in the character and practice of agriculture in this country because of its enormous energy input, there might be some sensible purpose for this tax. If we were to see vigorous encouragement of conservation, the insulation of buildings, the installation of flues in new buildings and so on, one could see some logic in it.
Again, if we could see some sign that public transport would be encouraged to assist rural areas, one might see some logic in what the Government were doing. The hon. Member for Dorking told us complacently that his rural area virtually lacked any public transport. I can tell him that in South Yorkshire we have seen bus ridership increase. It is the only area in Britain where it has. Only this morning I received a response on a problem which I had raised about communications, and now some of my outlying areas are to benefit from the experimental use of small vehicles. My own Labour Government were not quite as helpful to the South Yorkshire county council's transport policies as many of us would have liked, but what they did was infinitely better than anything which may be promised or interpreted as possible under the present Government.
We have, as I say, increased bus rider-ship. We have spent a great deal of public money on providing bus services to small villages which in any other part of the country would have been isolated or cut off to a far greater extent.
That public service is essential. It is good energy policy as well. If the Government were to devote some of the money which they will extract from the poor prisoners of the motor car who will have to pay, whether they like it or not, to 1454 some of the purposes which I have outlined, we could perhaps take a somewhat different view.
It has been said that people can reduce the size of their vehicles. I could not reduce the size of the vehicle in which I often drive around my constituency, because it is a Mini. I can, of course, get into it, but I should hate to go to a smaller car than that. I do not think that it would be good either for the decency and dignity of the House or for the comfort of the Member for Rother Valley if I did.
If there were any sign of intelligence or imagination in the Government, they would be telling the House and the country that they were putting 5p or 6p on to the price of petrol so that the money could be directed to serious and important purposes. I speak of 5p or 6p, but it could be a higher figure because, as the right hon. Member for Down, South (Mr. Powell) said, it is a regression plus VAT. But if we were to have an assurance that the 5p or 6p was to be devoted entirely to developing energy saving without reducing industrial and economic efficiency, there might be some logic in it, but without that the whole position adopted by the Government is illogical.
What is worse, the Government are merely tinkering with the problem, pursuing the most lunatic energy policy that anyone looking at the matter calmly could envisage. We are falling over ourselves to consume our offshore oil at the fastest possible rate. Hon. Members on both sides are aware also that the amount of gas being flared offshore is a scandal, and under this Government there will be more flames of folly to be seen from miles distant around our coasts.
It seems to me that the situation is so serious that we ought to spend some of the money being raised at least in making sure that the gas is not frittered away in a manner which future generations will find particularly nauseating. But there is no sign of that sensible approach being adopted by the present Government.
§ Mr. Patrick McNair-Wilson
The hon. Gentleman has raised the important matter of gas flaring. He knows that restrictions are available. Does he recall that his Government refused to enter into any deal to produce a gas-gathering pipeline in the North Sea?
§ Mr. Hardy
Because at that time the Government did not wish to be prey to certain unsatisfactory influences or arrangements. But the situation is now even more serious. Let me tell the hon. Gentleman why I believe that certain steps should be taken and financed with the proceeds of this tax. I recognise that we are in a minority on these Benches and we cannot force the Government not to go ahead with this absurdity, but we can at least press for certain things to be done. For example, there are many parts of the country where people depend on oil-fired central heating. It seems to me essential that they be persuaded—I do not think that they will need much persuasion—to transform the heating of their homes. I believe that a crash programme should be introduced to secure that.
I am a believer in energy conservation, and I think that my record shows it. That which I am about to say may be regarded as heresy when set against my past record. However, there are large areas of Britain where there is no gas connection and where oil central heating is fairly common. I am on record as suggesting that we should have flues and efficiently burn coal. Those systems will have to develop in the long term. In the short term it is essential that the British Gas Council, as a result of contributions from the increased tax yield, should extend the gas connection to places such as Harthill in my constituency, which is to a large extent an area of coal, oil-fired or electric heating and where the use of gas would be both economic and just. We must move in that direction.
Possibly the use of gas should be rather more cautiously handled, but certainly we should not allow oil to be used for heating 1456 or steam raising. If the Government were to consider the energy problem from those standpoints, the United Kingdom would he immeasurably better off. That is the right approach. It is no good tinkering with a tax that will cause great hardship and inevitably stimulate inflation. It will not lead to social ease or any political content for the present Administration.
§ Mr. David Penhaligon (Truro)
I am pleased to take up the remarks of the hon. Member for Rother Valley (Mr. Hardy) as I think that he went to the nub of the issue—namely, the United Kingdom's fuel policy. One of the arguments in support of an increased rate of VAT is that it will encourage the saving of oil. There is a marginal element of truth in that. If we do not admit that, we are not admitting the truth. However, only about 20 gallons of oil of every 100 gallons imported into the United Kingdom are used by the motor car. In general terms I am prepared to support a fair oil conservation policy that is applied to a wide spectrum. It is clearly nonsense to select petrol, diesel and transport, which are already taxed to the hilt, as the only area in which to save fuel.
If a person wants to buy oil to heat his swimming pool, the oil will be virtually tax-free. However, if a person in my constituency, for example, wants to buy oil to get to work, to bring food into the area or to make industry function, his fuel will be taxed heavily. There is no logic in that. I should be surprised to find an hon. Member prepared to argue the logic of that approach.
Items such as plastic bags are nothing more than lumps of oil. We should consider the possibility of taxing plastic bags and other such items. We should encourage consumers to buy paper bags or, even better, to use no bags at all.
Much of the diesel fuel that is consumed is not taxed. The diesel fuel used in agriculture and in most construction work—for example, the enormous earth-movers that are such a familitar sight in my constituency—is tax-free and will not be affected by the measure hat we are discussing. The hon. Member for Dorking (Mr. Wickenden) rightly said that most of the cars on our roads are owned and run by businesses and similarly are not affected. 1457 It may be that the hon. Gentleman exaggerated the statistics. A recent statistic indicated that 70 per cent. of new cars were purchased by businesses, not that 70 per cent. of the cars on our roads were owned by businesses. Even so, all those cars will escape any attempt by the Government to conserve fuel.
Many of us are protected. Many hon. Members buy a large car and drive to London and back twice. It is one of the few ways in which we can make money to pay the bill. The House pays me to drive from Truro to London. It pays me about £84 to do so. I do not know what it will pay me to take account of the recent increase in petrol prices. No doubt I shall receive a note from the Fees Office before long to tell me that my mileage allowance is no longer 13.9p a mile but 18p or even 20p a mile. I do not know what it will be under the new tax regime. We are all protected. It does not make any difference to hon. Members whether petrol is £1, £1.50 or £2 a gallon. Much the same goes for the entire business element in our society.
I shall support any fair and realistic attempt to conserve fuel. We must stop the general practice of being able to drive for expenses without being made to use the rail alternative when that is reasonable. It would be reasonable to tell me that I shall be allowed expenses to drive around my constituency because there is no reasonable alternative. However, it would be unreasonable to tell me that I shall be able to have £100 a time to drive from my constituency to this place.
§ Mr. Penhaligon
I admit that when I have a large car bill to pay I am tempted to drive to London. That allows me to pay the bill. I am sure that many other hon. Members do likewise. I probably drive from my constituency to London once every six weeks. I do not drive from Truro frequently, because it is a long way. If we are honest, we all know that the mileage allowance and the way in which it is calculated is one of the ludicrous ways of making up for the 1458 many years that Members of Parliament have not been paid a reasonable and sensible salary. That is a fact.
§ Mr. David Stoddart (Swindon)
Is the hon. Gentleman aware that the mileage allowance payable to hon. Members is below the allowance recommended by the AA?
§ Mr. Penhaligon
That may be, but it is usually uprated to take account of petrol price increases. We are informed of the upratings by the Fees Office. The hon. Gentleman argues that the allowance is still below the allowance recommended by the AA. A spokesman has commented on the figures produced by the AA that it claims represent the cost of running a car. If its figures are correct, I fail to see how any of my constituents earning £50 or £60 a week can afford to run a motor car.
§ Mr. Dalyell
I cannot sit in my place and allow the hon. Gentleman's argument to go unchallenged. I have not driven to London—I am sure that many of my Scottish colleagues are in the same position—for the past year. I have always used public transport.
§ Mr. Penhaligon
That is clearly excellent. We should all be encouraged to do likewise by a change in the system.
Much reference has been made to the vehicle excise licence. The previous Government considered changing it. We could make a much more effective change if we retained the system but graduated it so that it took greater effect against the gas guzzler. We should introduce a system that has the effect of charging the owner of a large car that consumes a great deal of petrol a high rate of duty. We could introduce a system that allowed the owner of an economical car to pay virtually no excise duty. That would encourage the car-driving public to buy economical cars.
Once a person buys a motor car he tends to drive it in his own style. That is so whether he is an economical driver or a rash driver. If petrol increases in price he may temporarily change his style, but he will soon revert. However, if he begins by buying an economical car, that will save some fuel. Such a change in our vehicle excise licence system would do more to save fuel than abolishing the system and increasing the price of petrol.
1459 The increase in VAT is punitive. I speak for Truro, the constituency that elected me to this place. It is a constituency with an unemployment level running at about 10 per cent. That has been the position for a considerable time. I am somewhat doubtful about the wages statistics that are produced, but they indicate that outside the Border region of Scotland Cornwall now has about the lowest average wage of any county. Increased VAT is merely rubbing salt into an existing wound.
Not one member of the Conservative Party representing a south-western constituency is present. I remember the rhetoric from those Members of Parliament when the previous Government increased the price of petrol by a few pence.
It took two or three months for the price to go down. Those Members of Parliament should explain to their south-western electorates why they were not present for this debate, although they decided to support their Whip and vote for the increase. The point at issue is the reduction in the living standards.
§ Mr. Heffer
The hon. Gentleman said that no Tory Members of Parliament representing south-western constituencies were present. Earlier there was an important debate on the question of housing. I did not see many members of the Liberal Party present at that time. Perhaps there were one or two. Some of them represent areas such as mine, which have serious housing problems. It is time that hon. Gentlemen stopped this chear jack nonsense and argued the proper case and refrained from producing this rubbish, of which I am becoming tired.
§ Mr. Penhaligon
The hon. Gentleman should remember that three Members out of 11 represent 27 or 28 per cent. of the Liberal Party members. That is a reasonable attendance.
§ Mr. William Clark (Croydon, South)
The fact that we are discussing a Liberal amendment and that there are three Liberal Members of Parliament present indicates that there is always a good Liberal turnout for a Liberal amendment, but when housing is being debated, or if there is any other debate, the Liberals are absent.
§ Mr. Stephen Ross
This is a stupid argument. There were two or three Liberal Members of Parliament present during the housing debate.
§ Mr. Penhaligon
I see that I have upset some hon. Gentlemen, as I usually do when I speak. The increase which we are discussing is a deliberate reduction in the living standards of people living in rural areas. Many of our poorest people live in the rural areas. Not all of rural Britain contains the rich commuting areas of our prosperous cities. There are many rural areas like my constituency and Inverness. This is a deliberate reduction by the Conservative Government of the living standards of people in areas which, with few exceptions—in the South-West I am the only exception—have been faithful to the Conservative cause.
§ Mr. Cook
Following the extraordinary speech of the hon. Member for Truro (Mr. Penhaligon), I must say that never in five and a half years have I driven from Edinburgh to London to attend Parliament. I would not seek to make a conservationist argument out of that. I have come by air on most occasions and, therefore, I suspect that I used more fuel than if I had come by car.
I say to the hon. Member for Truro, for whom I have a high regard, that there is a perfectly credible and defensible argument for increasing the salaries of Members of Parliament. However, it does not assist that argument nor does it assist us in defending it to the public, if we lump in with it the view that it would encourage us to stop abusing the allowances that are available to us.
I am glad to speak after the Liberal Party spokesman. I believe that the hon. Member for Truro was not present when the hon. Member for Inverness (Mr. Johnston) spoke.
§ 7.45 p.m.
§ Mr. Cook
I was surprised when the hon. Member for Inverness assented to the proposition of the right hon. Member for Down, South (Mr. Powell) that there would be an oil glut after the shortage. I was not surprised that the right hon. Gentleman advanced that proposition. 1461 However, I was amazed at the facility with which the hon. Member for Inverness assented to it.
I meet Liberal Party energy spokesmen from time to time. I suppose from their remarks that I meet them more often than the hon. Member for Inverness. I see no evidence of a coming oil glut. We do not have to look only to the future. We may look at the empirical evidence of recent history. The increase in oil prices in 1973 was every bit as traumatic as the present increase. In the five years following the increase, from 1974 to 1978, we continued to consume more oil than we discovered. The price mechanism did not solve the fundamental problem that the oil supplies were small and were getting smaller.
I agree with the right hon. Member for Down, South, who said that one effect of increasing oil prices would be that we should look for oil at the margin and that the reserves that were barely economic would become more economic. The right hon. Gentleman cannot be aware of the extent to which we are already operating at that margin. Had it not been for the increase in oil prices in 1973, the great majority of oil now coming out of the North Sea would already be uneconomic.
If we go beyond the level in which we are now drilling for North Sea oil, we shall run into not price or economic barriers but technological barriers. We shall reach the stage at which we must wonder whether the input of energy to get the oil out is not a greater penalty to the economy than the oil gained from drilling.
That is not a new argument; it has been going on for some years now.
In 1974, when we were recovering from the price increases of 1973, I heard Professor Milton Friedman speak on the radio. It was an unpleasant experience. His spirit has hovered over our debates. He was asked what should be the Western response to the 1973 hike in the oil prices. His response was that we should not become unduly worried about it because it was the effect of a cartel and, like all cartels, would prove to be an artificial, temporary influence on prices, and that eventually the market mechanism would reassert itself, the prices would fall and we would return to an oil glut. 1462 That cartel has proved especially long-lived. I see no sign that in the next remarks that I meet them mor often more than in the past five years.
It is fortunate that we have the opportunity, especially under new clause 10, to debate the Government announcement that they were reviewing the commitment given by the previous Government to phase out vehicle excise duty. That statement was made on the last sitting day before the recess in answer to a planted question. Those Members of Parliament who have been here for any length of time are aware that when a Government announce their policy by means of a planted written question on the last day before a recess it is because there is no rational defence for it.
So it is in this case. Indeed, if we were to look for a policy pursued by the previous Government which would have been attractive to the fiscal policy of the incoming Government, we would inevitably be driven towards choosing the commitment to abolish vehicle excise duty. In theory, everybody is obliged to pay the tax. If vehicle excise duty were abolished, those who pay the tax would have the freedom to decide how much to contribute in the form of tax through the amount of petrol that they chose to consume.
There is no point in hon. Members representing rural and agricultural constituencies saying that their constituents have no freedom of choice as they must travel a fixed mileage to get to their work or to the shops. In the VAT clause debate those representing urban constituencies listened to Government supporters saying that increases in VAT and cuts in income tax would give their constituents the freedom of choice to buy clothing, furniture and cookers or such fripperies and luxuries.
There are other features in the abolition of vehicle excise duty that I should have thought were in harmony with the general policy pursued by the Chief Secretary. That measure would have removed £20 million of public expenditure at a stroke. It would have saved public manpower by allowing a reduction in the staff at the Swansea licensing centre. The Chief Secretary is in a paradoxical position. The logic of the decision to retain vehicle excise duty means that he will have to recruit additional manpower. The Civil Service unions that 1463 represent the Swansea staff have said that additional manpower will be required to enforce the vehicle excise duty and to catch the 8 per cent. who persistently evade it.
It was not surprising that the Minister of Transport chose the last sitting day to announce that policy. The Government have rejected a change that would have been in harmony with their fiscal objectives because, as my hon. Friend the Member for Renfrewshire, West (Mr. Buchan) said, the shift would have achieved the fiscal objectives while being progressive rather than regressive. The average motorist who drives an average car with average petrol consumption would, provided he did not travel more than 8,000 miles per year—which is a substantial allowance—benefit from the change. Only the motorist who travels further or who drives the Jaguar that belonged to the hon. Member for New Forest (Mr. McNair-Wilson) would pay more. That change of tax policy would be in harmony with the Government's general objectives, and would also be progressive.
It is not surprising that the Government rejected that alternative. It would have been out of place in a Budget that is throughout regressive rather than progressive.
Wider considerations have been raised in the debate. A number of Members have questioned whether the imposition would have a conservationist effect. I have as much interest as any other hon. Member in conservation measures. This morning I assisted in the presentation of a petition against one of the more obvious energy follies of the Government, namely their decision to press ahead with another nuclear power station in Scotland. I have also urged on many occasions a switch of investment from private transport to public transport before the fuel runs out.
However, the claim that the increase in duty will have a significant conservationist effect is nonsense. There is not the slightest support for it. In eight months, the price of four-star petrol has risen by 40p per gallon. It is nonsense to suggest that there will be any significant restraint on consumption by the addition of 7p per gallon.
1464 Newspapers that may be thought to be sympathetic to the Goverenment, such as the Financial Times and The Spectator, have condemned the Budget package, not because they dislike its effect but because it is inappropriate to the times. Nowhere is that seen more clearly than in the decision to increase the tax on petrol at a time when petrol prices are rising faster than at any time in the past five years. The Budget bears out the prejudices and even the fantasies of Conservative Members. They are unable to adapt to the realities of the world, especially the realities of the consequences of the OPEC price rises.
The Government have introduced the duty increase because they are desperate to increase the revenue from anywhere and on anything in order to pay for the tax handouts that they are giving to those who drive the Jaguars referred to by the hon. Member for New Forest. If they had to increase tax, they should not have increased the tax on oil, which is the energy commodity whose price is rising fastest.
If we were considering which energy commodity should be taxed in order to restrain consumption, we should have to choose gas. Gas is a commodity that is not labour-intensive, and has therefore been insulated against the inflationary pressures of the past five years. Most of the extraction installations were put in before 1974 and therefore bear a historic cost which pre-dates the rates of inflation since 1974. Gas is therefore being sold at a price that is cheap, reflecting the inexpensiveness of its extraction from the North Sea, but that does not reflect the value of that commodity in a world that is increasingly running short of energy.
If the Conservative Party were to look round the energy market and introduce an impost for conservation effect, gas would be the choice rather than oil. The imbecility of the policy is clearly demonstrated when tax is added to a commodity in respect of which prices are rising fastest while the Government are leaning on the British Gas Corporation to hold down gas prices. People will switch from oil to gas, consumption of gas will rise, and our North Sea reserves will be depleted at an even faster rate.
1465 The duty increase will not have a conservationist effect. There is no coherent conservationist strategy in Government policy. Therefore it is doubtful that the increase has been introduced for conservationist motives.
The bizarre decision last month to cut back fuel supplies to British Rail by 7 per cent. has had the inevitable corollary, at a time of increasing fuel shortages, of cutting services by 7 per cent. That decision was not taken by the Government or British Rail: it was taken by Shell and Esso, which decided that supplies to British Rail were to be reduced by 7 per cent. The Ministry of Transport says that it is not its business to intervene. The Department of Energy says that the market effect would be distorted if it intervened, that the matter should be left to the commercial judgment of Shell and Esso and that users of public transport should be left to the mercy of those commercial criteria. It is an irony that Parliament has voted powers to the Government to intervene—powers that they are choosing not to exercise.
It is just arguable that the 7 per cent. cut in fuel to British Rail could be defended on the ground that it makes a contribution to conservation. It is arguable that that reduces the extent of the erosion of Britain's oil reserves. However, the Ministry of Transport and the Department of Energy are unable to tell us whether the 7 per cent. being saved from fuel supplies to British Rail will help conservation or whether there will be a greater consumption of petrol as commuters are driven from public transport to private transport because of the reduction in public transport services. No research has been carried out on that question. That is the extent to which the Government have backed away from intervening in a critical situation at a critical moment.
Our constituents are suffering from that failure to respond. Conservative Members will suffer when they face the electorate in the months ahead. The electorate will not forgive them for neglecting their duty in a moment of crisis.
§ Mr. Stoddart
I am sorry that the hon. Member for Truro (Mr. Penhaligon) has left the Chamber. He popped into the Chamber, was called to speak, and 1466 popped out without having the courtesy to listen to the hon. Member following him. That demonstrates that the hon. Member for Truro is not interested in debate. He is merely interested in making a cheapjack statement and leaving the Chamber.
If the hon. Gentleman misuses the expenses available to Members and uses his car on an inessential journey because he has a high repairs bill to pay, that is a matter for him. He speaks for himself and for nobody else in the House. The hon. Gentleman has no right to make such statements which he pretends apply to all hon. Members. I emphasise that he speaks for himself and condemns himself.
Turning to the amendment, I agree with the remarks of the hon. Member for Inverness (Mr. Johnston) about the attitude of the Government. Their attitude has changed since 1977, when the Labour Government proposed, but did not follow up, an increase in fuel tax of 5p. I can well remember members of the Government, with crocodile tears in their eyes, describing the difficulties that would arise for retirement in rural constituencies.
We were told how difficult it would be for poor, low-paid farm workers to get to town to do their shopping, and how awful it would be for people living in rural areas because they would be isolated and unable to visit their families and friends. How sorry we were for them. What a picture of deprivation Government Members set before us because of the imposition of this extra 5p. The price of petrol at that time ranged between 68p and 70p.
What a change has come over the Government. During that debate these benches were full. There were so many Conservative Members who wanted to speak about the imposition of this extra 5p that they could not all be called. Where are they now? Are not their constituents still retirement pensioners who will have difficulty getting about? Are the people living in isolated communities now less likely to want to meet their friends and see their families? Why are not Conservative Members protesting at this increase of 10p in VAT? They opposed the 5p proposed by the Labour Government, so where are they now when 1467 this increase of 10p will be on top of 22p, which is the difference between the price of petrol in 1977 and now?
§ Mr. Dalyell
My hon. Friend the Member for Swindon (Mr. Stoddart) asks where those Conservative Members have gone. The truth is that many of them have become Ministers of the Crown and are making the decisions.
§ Mr. Stoddart
I am most obliged to my hon. Friend the Member for West Lothian (Mr. Dalyell) for making that point. I had overlooked that. It is amazing what a change of heart has come over Members of the Conservative Party now that they have the power of decision. I am sure that this will be noticed by the population at large.
In view of the exorbitant price increases that have taken place, there is good reason for agreeing to this amendment. When this Budget was prepared, I am sure that the Government had no idea how high the price of petrol would go before the imposition of any further tax. They could have had no idea that the price of petrol would rise to its current level of £1.22 per gallon when they prepared the Budget.
It is incumbent upon the Government to take the new circumstances, about which they could not possible have known before Budget day, into account and back down from this increase. They have the opportunity to rescue their reputation by agreeing to the amendment. The Chief Secretary could come to the Dispatch Box and say that the Government did not realise the implications of the rising price of petrol before the Budget was prepared. He could tell us that the Government have seen what has happened, have listened to the arguments and are prepared to remit this tax.
§ Mr. Stoddart
That would be the best possible solution, but I am afraid that that is asking too much.
The price of petrol has risen by 32p to 35p per gallon, which is an enormous increase. But it is even worse in some areas. My local newspaper, the Swindon Evening Advertiser, reported earlier this week that in Farringdon a garage was charging £1.41 per gallon. The garage 1468 owner explained that it was not his doing. He was a small business man and he did not want to charge his customers that price. However, because the Government had refused to do anything about allocation of fuel the garage proprietor could not get supplies from his normal source, and had to buy from independent sources, making his profit margin less than it would have been. Because of the inactivity of the Government in controlling the distribution of petrol and oil, not only do people in various parts of the country have to pay exorbitant prices, but those who supply the petrol are in danger of bankruptcy. They are the very people who voted Conservative and are the very people about whom the Conservatives expressed so much concern—the small business men.
§ Mr. Dalyell
This is counter-productive in terms of energy saving, because many in country areas such as mine who regularly go to small garages now have to swan around covering many miles in order to find petrol.
§ Mr. Stoddart
Yes, indeed. It is a self-defeating exercise. As my hon. Friend the Member for West Lothian knows, in the face of that problem the Government remain quite inactive and are prepared to leave the whole matter to international oil companies. One wonders why on earth they were elected to govern.
The right hon. Member the Leader of the Liberal Party made that point a week ago. He asked why the Government were elected, if they did not expect that one of their tasks would be to ensure that essential oil supplies reached consumers on a fair basis and reached those parts of our economy which need the supplies.
§ Mr. Heffer
Is my hon. Friend aware that, while his constituents in rural areas are suffering, in my own constituency, which has a motor-racing circuit, two nights a week and at weekends my constituents' ears are still blasted off as a result of this motor racing? An enormous amount of fuel is used. At the same time there are people who desperately need that fuel in order to get to their jobs.
§ Mr. Stoddart
My hon. Friend underlines and emphasises the circumstances 1469 that arise because of the non-intervention of the Government. By their inactivity they are allowing inessential users to take precedence.
§ Mr. Donald Anderson (Swansea, East)
Why is my hon. Friend the Member for Swindon (Mr. Stoddart) surprised at this? This is surely the essence of Tory rationing. It is not rationing according to need but according to ability to pay. This happens in every sphere. It is Tory rationing.
§ Mr. Stoddart
That is right. My hon. Friend the Member for Swansea, East (Mr. Anderson) knows that it was ever thus. Unfortunately, people at the last election had probably forgotten what the Tories were really like. Now they know. Some young people, perhaps, may be excused because they have not had to suffer under Toryism during their lifetime. Now they have got the mesage and if we had a general election tomorrow the outcome would be different.
However, the increase in fuel prices will be felt right across the economy. We were assured by the Chancellor when he introduced his Budget that only inessential things would be affected by the increase in VAT, but the increased VAT on petrol and other fuels will affect every commodity, including food, in exactly the same way as VAT on packaging will also affect food. Therefore, it is not only inessential things that will be affected, but also essential things.
§ Mr. Joseph Ashton (Bassetlaw)
Does not my hon. Friend agree that there are secondary effects, for instance, on the value of property which has oil-fired central heating? There is not only the question of oil costs rising for the owner of the house with oil-fired central heating, but the fact that the value of the property is liable to drop by about £5,000 to £10,000 from now on because people will find that they cannot sell a property because of the shortage of oil supplies. Is not that a negation of the concept of the Tory property-owning democracy and the Tories' insistence on keeping up the value of owner-occupied houses?
§ Mr. Stoddart
My hon. Friends keep raising very relevant points which need to be dealt with. I hope that the Chief Secretary will deal with them. My hon. 1470 Friend the Member for Bassetlay (Mr. Ashton) is very much on the ball. From a message which I have received while sitting in my place, I understand that there is an article in a London evening newspaper illustrating the worries that are facing people who have homes with oil-fired central heating, not only because some of them will have to face an increase in oil prices but because they simply cannot get fuel. What is more, the projections of the oil companies show that fuel will be in even shorter supply next winter. As many people who have oil-fired central heating in their homes have only limited storage capacity in their tanks, they may very well have to go cold.
My hon. Friend is absolutely right. In these circumstances, if a person wishes to buy a house but sees that it has oil-fired central heating, and if there is no possibility of converting to gas, he will not buy that house. The house may well be on the market for a very long time, and the owner may be forced into selling it for a much lower price than he had hitherto expected. That could cause grave hardship. It could prevent a person from taking a job elsewhere, for example, or from being able to retire to the area in which he wanted to retire. Therefore, that is another effect of Toryism and the failure of a Tory Government to deal with the things with which they should deal.
§ Mr. Peter Rost (Derbyshire, South-East)
The hon. Gentleman has made a great speech about the so-called failure of the Conservative Government to intervene in order to increase supplies of petrol and fuel oil. Will he explain why there is no shortage of fuel oil in France, Germany and other European countries? Could it possibly be because they have been prepared to pay the world price and that the previous Labour Government deliberately tried to hold down the price and Labour Members are now advocating the same policy, which will lead only to further restrictions and shortages?
§ Mr. Stoddart
I am obliged to the hon. Gentleman for intervening in that way. It is a further condemnation of his own Government. It was he who told us that in France and Germany there is no shortage of petrol. Those countries do not 1471 have indigenous oil supplies. Yet here, we, under a Tory Government and with our own oil supplies, are apparently unable to meet the demand.
§ Mr. Ioan Evans (Aberdare)
Will my hon. Friend underline the point that the confusion on British garage forecourts dates from 3 May, when the present Tory Government were elected? There was no shortage until the Tories were elected to office. It is their market forces that have caused it.
§ Mr. Stoddart
That is right. I am amazed that the hon. Member for Derbyshire, South-East (Mr. Rost) should have intervened to condemn his own Government in such a way.
§ 8.15 p.m.
§ Mr. Stoddart
What I am advocating is that the Government should ensure that oil supplies from our own sources are not diverted to other places, such as South Africa and the Common Market countries, at the expense of people in Britain. It is the hon. Gentleman's Government who have done that, and not the previous Labour Government. Again, therefore, for the second time, out of his own intervention, the hon. Gentleman has condemned the present Government's policy.
Another point that I wish to make is about our own motor industry. The Government have been warned throughout the passage of this Bill that the doubling of VAT is bound to have an adverse effect on our industry. It will adversely affect our textiles industry and our footwear industry, as we heard last night. But an imposition on the price of petrol helps our foreign competitors in respect of cars, because a great part of 1472 the British small car market is supplied from abroad. Since the higher the petrol price, the smaller the car that will be in demand, so the worse our indigenous car industry will be hurt.
I conclude by referring to conservation. It is no good talking about trying to conserve scarce oil supplies merely by the price mechanism. That simply will not do. I listen to the right hon. Member for Down, South (Mr. Powell) with great respect when he speaks on economic matters and Common Market matters. He talked about a glut. He virtually said that as sure as night follows day, a shortage will be followed by a glut. I wish that I could think that he would be proved right. Perhaps, over a period, and in normal supply and demand conditions, that would happen. However, in the case of oil there is no infinite supply. The market economy can and will work to the ultimate only if there is an infinite supply.
There is no true glut if the supply is finite. Following a glut there will be a shortage until eventually oil runs out. That is why the Government should not consider controlling oil conservation solely by price but rather turn their efforts to finding alternative forms of energy. Many of these have been mentioned this afternoon.
The Government should give encouragement and financial inducement to people better to insulate their homes. They should also ensure that our public transport services have a better allocation of oil. These services should be increased and the public encouraged to use public transport. That would consequently save oil. A great effort should also be made to bring in electric traction. Let me here put in a plug not only for electrification of our railways but a return of the trolleybus, which would save a great deal of oil. The trolleybus was phased out through the lobbying of the oil companies, but it was a great vehicle, capable of dealing with stage carriage transport. I hope that the Minister will persuade his colleagues in the Department of Transport to consider these alterative methods of traction.
This amendment should be supported. I hope that there are enough Tory Back Benchers with good memories to support the amendment.
§ Mr. Ioan Evans
The Chancellor of the Exchequer said that this was an opportunity Budget, but it is an "Opportunity Knocks" Budget. It gives an opportunity to the profiteer—the oil companies—and the national asset stripper, when public corporations are handed over to private enterprise. It knocks the consumer. Its VAT provision knocks the housewife and these taxes are knocking the motorist.
The Government have been asked whether the increases are to raise revenue or conserve energy. There is an oil crisis, and that was discussed at the Tokyo conference. The Prime Minister went to Tokyo in an RAF transport plane. It would have been a gesture of the right hon. Lady's concern for oil conservation if she had travelled by British Airways. She would have been practising what she preached, although I believe that it is good for world leaders to get together to discuss such problems.
If Ministers are concerned about energy conservation, instead of coming to the House in Daimlers and Rolls-Royces, they should come in British Leyland Minis or other small vehicles. That would also cut down public expenditure.
§ Mr. Evans
On occasions, I believe that the Chancellor rides a bike, but I do not go that far. If Ministers set an example by coming in smaller cars, that would also save public expenditure. The revenue proposals are not being put forward purely to conserve energy. The Tories made great play during the election of the fact that if elected they would cut taxes.
There used to be a sloganPut a tiger in your tank.Motorists now realise that every time they go to a petrol station they put a 10p Tory tax in their tanks with every gallon. This tax was imposed in the same Budget as reduced the tax on higher income groups from 83p to 60p in the £. That is a 23 per cent. reduction. Yet the basic rate will be reduced by only 3p in the £.
Many people who take their cars to work have no alternative means of transport. To them a car is not a luxury. It is absolutely essential. Yet these people have an extra tax imposed upon them every time they fill up with petrol 1474 The previous Labour Government had a strategy for moving away from the vehicle excise duty, which would have meant the removal of the annual £50 tax on each motor car and the imposition of 5p extra on each gallon of petrol. That was a move to try to conserve energy. The more one consumed, the more one paid. I see that my hon. Friend the Member for Swansea, East (Mr. Anderson) is in the Chamber, and I realise that the Driver and Vehicle Licensing Centre is in his constituency. However, I believe that those people working at the DVLC could have been absorbed in other parts of the Government service. There was a lot of sense in the previous Government's proposal.
Yet when that proposal was put forward, the Conservative Benches were full to overflowing with right hon. and hon. Members complaining that it was absolutely wrong to add 5p a gallon to the price of petrol. They said it discriminated against those living in rural areas and was a tax on old-age pensioners. That was only 5p, and it went hand in hand with the elimination of the £50 VED. At that time the price of petrol was far less than it is now.
The Government believe in market forces. Market forces have already operated externally in this case, so the Government have no need to do anything more. The way the international price of petrol has gone up has meant that consumers have had sufficient restraints upon them without a further Government imposition of additional tax. We have heard a lot about the difficulty of petrol supplies and the need to impose tax because, for the time being, there is a shortage. Now we hear Conservative Members saying that this will only be temporary and that a glut may follow the shortage. Therefore, will the 10p tax also be temporary? When the supplies equal the demand, will the Government come to the House and remove the 10p, or will this tax be a permanent feature?
§ Mr. Anderson
My hon. Friend should realise that this Tory tax will be as temporary as the concessions to higher income earners.
§ 8.30 p.m.
§ Mr. Evans
In that case, I presume that while the Government are in office 1475 that will be a permanent arrangement. My hon. Friend has a point.
When the Secretary of State for Energy made his statement to the House it was at a time of utter confusion in petrol stations all over the country. Some areas were completely without supplies, and many tourists found that petrol stations had closed down completely. That was because of the way that the supply of petrol was being managed. Queues were appearing everywhere. The Tories said that they would leave the matter to market forces.
I recall that at that time there was not one petrol station supplying petrol on the M4. There was one petrol station displaying a notice saying.£2 worth of petrol only".Two pound's worth of petrol does not get the motorist very far. In other petrol stations notices were displayed to the effect that they were selling not less than £4 worth of petrol. Nowadays, some petrol stations in London will allow the motorist to buy two or three gallons at £1.20 per gallon but, if he wishes to buy more, he will pay at a higher rate—possibly, £2 per gallon. That is the way that market forces operate.
It has been pointed out that in this country we are rapidly becoming self-sufficient with our North Sea oil and yet there is chaos in our petrol stations that is unheard of in France or Germany, both of which receive North Sea oil. There have been difficulties in Ireland, but most of the countries who receive North Sea oil have not experienced such difficulties.
What should be done to resolve the problem? The Government should become involved in it and the petrol companies should not be allowed to deal with the distribution of petrol in the way that they are with all the injury that is being caused to British motorists. The companies should not be allowed to get what they can from the market. At the moment, as far as they are concerned, anything goes.
After the chaos had developed, the Government came along and imposed the 10p extra charge on each gallon of petrol. Since that time, the problem has not been resolved in many areas. In my 1476 constituency, the railways and other public transport services have been unable to obtain the oil that is required to allow public transport to operate. What sort of energy conservation is that when people cannot travel by public transport? They have been forced to use their motor cars by a Government who say that it is their intention to conserve energy.
Oil-fired power stations are now working to full capacity, unlike the coal-fired power stations—despite the fact that there is 300 years' supply of coal and large stocks in the country The oil companies are taking full advantage of the lack of intention by the Government to become involved in the market forces. BP—a British-owned company with a 51 per cent. Government shareholding—is making large profits. The Government announced their intention to offer BP for sale. If BP were retained in the public sector, that at least, would mean that the benefit would be returned to the people. The extra prices that the motorist is paying at the petrol stations should not be sold out to private enterprise.
If there is to be a so-called "sale of the century" will BP, which is now owned to a large extent by the British people, give the benefit to the British people, or will it be handed over to financial speculators from various parts of the world? Would foreign investors buy it? It is essential to maintain our control of the company. It would look very bad if the Government, after their handling of the oil crisis, sold it.
With North Sea oil flowing, this country should not be experiencing the difficulties that other countries have.
§ The Temporary Chairman
I hope that the hon. Gentleman will not take up that question, but stick closely to the amendment that we are supposed to be discussing. We do not want a general debate on energy supply.
§ Mr. Evans
I shall of course abide by your ruling, Sir Stephen. If I had the opportunity, I would answer the question. 1477 In preference to the present chaos I would accept rationing, but I do not think that it is necessary, because before 3 May we did not have chaos. We had a Labour Government, and supplies were flowing well to the petrol stations.
We are concerned about supplies, and we have discussed oil conservation. I cannot understand the Government's pursuing a policy of selling oil to South Africa, through the swap arrangements.
§ The Temporary Chairman
I am sure that the hon. Gentleman will realise that he is now straying a long way from the amendment. I hope that he will not continue to do so.
§ Mr. Evans
The only point I am making, Sir Stephen, is that oil from the North Sea is straying, too, and I hope that it does not stray to South Africa and Rhodesia. I hope that we shall confine it to this country.
The Government were elected on their promise to reduce taxation. Yet every time motorists buy petrol they are paying more in tax as a direct result of the Government's decisions. I hope that we shall be supported by those Conservative hon. Members who spoke so eloquently in the past of the suffering of people living in rural areas that an increase of 5p a gallon in the tax on petrol would cause. Recently we have seen an increase not of 5p or 10p but more like 15p, 20p and 25p. There is now talk of the possibility that before long the price will be £1.40 or £1.50.
When the Government have allowed petrol to reach such a high price through the operation of market forces, why do they want to impose a further 10p increase? I hope that Conservative hon. Members will be with us in the Aye Lobby. Just as some of us made representations to our Government not to impose a 5p increase, I hope that they will show the courage of the convictions they once had and help us to pass the amendment.
§ Mr. Alexander W. Lyon
I entered the debate with a genuine spirit of inquiry. I did not expect to learn so much about the peccadilloes of the Member for Truro (Mr. Penhaligon)—"Honourable" would be too high an appellation to apply to the gentleman. In the kind of aspersions he cast about fellow Members, I think 1478 that he was beneath contempt. I hope that my remarks may be conveyed through the hon. Member for Colne Valley (Mr. Wainwright) to his hon. Friend, as he is not here to receive any strictures in reply to the generalised aspersions he cast on fellow hon. Members.
That kind of comment is reproduced in the newspapers and is carried now in the leader columns of The Daily Telegraph as a way of inducing in the public a sense that we should reduce our expenses, when they are given, and usually claimed, only for necessary travel and necessary costs incurred in our occupation. I am surprised that he has the Tory freedom to decide whether he will travel by car or by rail. I have only one car. To get the car to my constituency, I have to drive it there. If I use the car in the constituency in the service of my constituents, it is because I drove to the constituency to do so. If the House ever wishes to be generous enough to allow me to buy two cars, so that I can have one at each end, I shall be delighted to go by British Rail. As an hon. Member who represents a railway town, I should always wish to subscribe to British Rail. I hope that the hon. Gentleman will in future moderate the tone of his remarks in relation to fellow Members of the House.
I come back to my genuine spirit of inquiry. I hope that the Minister of State will be able to help. My questions may relate to the Department of Energy, but I feel that they fall within the general judgment concerning this tax. Most increases in taxes by the Treasury are justified and justifiable on the basis of raising revenue. That is one of the arguments for this tax. It has been put by the Chancellor of the Exchequer and by the hon. Member for Knutsford (Mr. Bruce-Gardyne), whom I see returning to our debate, as a completely separate justification in terms of reducing consumption of desperately scarce energy. I do not understand the context in which this argument is made. It is highly relevant to whether we should impose the increase at this time.
There is a shortfall in world supply, because of the Iranian situation, of 3 per cent. If reflected throughout the world, 3 per cent. would mean a small reduction in the amount of petrol that the average 1479 motorist could put into his 10-gallon tank. We have seen since 3 May a massive reduction in supply throughout the country. In some areas, the reduction is as much as 25 per cent. to 30 per cent. That is not reflected by the shortfall of 3 per cent. If the intention of this tax is to reduce consumption to allow for the present Iranian situation, it is a sledgehammer to crack a nut.
The hon. Member for Knutsford has indicated already that the increased prices themselves, before the imposition of the tax, were actually reducing consumption within the country by 6 per cent. Why are we experiencing this degree of difficulty over supply if the overall world situation shows only a shortfall of 3 per cent? The answer cannot be as simple as the right hon. Member for Down, South (Mr. Powell) by his advocacy of the pricing policy, makes it.
The market has been engineered by the monopoly which the oil suppliers, the oil companies, possess in most of the countries in which they operate. They are not open to competition. They make their own judgments about where supplies should go. They have said that this country, which has so much indigenous fuel and so much oil of its own, will have to bear a bigger share of the brunt of the 3 per cent. reduction in oil supply than is justified by our position or by the world situation. The reason was that they were subject to some check upon their operations here. They have now made up for that by diverting oil from this country and our supplies from abroad into other markets where they can get a higher return.
I do not see how in those circumstances the Government can say that our people should bear, in addition to those difficulties, an impost of 10p per gallon, so that their standard of living is more seriously worsened than the standard of living of some of our major competitors. Hon. Members on both sides have pointed out that throughout the Continent the problems of supply have been infinitesimal compared with the problems in this country. Yet we have indigenous oil and they do not. Why has this happened? It has happened only because the oil companies were diverting it.
1480 I do not stray from the context of this debate if I refer to the Conoco swap with South Africa. The reason for objecting to that, quite apart from any of the merits of South Africa and the rest, is that it increases the difficulties of supply in this country and therefore is directly relevant to whether this 10p increase is necessary.
I do not understand why the Government are acting in this way. If they simply want to raise revenue, surely the worst way to do so is by means of a tax which imposes an increased burden across the board on all our people in every conceivable way. There have been references to the difficulties of driving in the countryside, but adding more duty to petrol means that one is bound to increase the cost of living across the board, because transport costs overall are bound to increase.
Therefore, the Government must, from a sense of concern for future inflation, have wished, if they could, to raise the revenue in another way. Some of the alternatives have been described today—taxes on wines and spirits, gambling and many other areas. It could have been done, if that was their real desire. They must at that stage have thought that it was necessary to put on this 10p to meet the shortfall from Iran and reduce consumption here at home.
I hope that I have said enough to show that I am not convinced that that shortfall was necessarily so damaging to our economy as the manoeuvres of the oil companies. If the Government were to deal with those manoeuvres they would not need this impost at all. That was their judgment at the time that the Budget was decided four or five weeks ago, but since then there has been this major increase in the oil price, dictated by the last OPEC meeting.
I recognise that that was foreshadowed to some degree by the spot prices which were being paid, but the OPEC decision meant that there was bound to be an increase in any case, having some effect, whatever effect price does have, on demand, and certainly more than the 10p increase imposed by the Budget.
This is not the usual form of bashing away at the Government on issues on 1481 which the Opposition when in government used to advance the same arguments. This is a sensible argument about a specific situation in which there is a limitation on supply overall to the world and perhaps more markedly in this country because of the actions of the oil companies and the question of how to meet them.
If there is any difficulty, it is being met by the more recent increase of OPEC. Therefore, we do not require this impost, which will make things even worse for the Government and—more particularly and more my concern—for the living standards of ordinary workers.
In due course the increase will be passed on in the coming round of wage claims. That will cause a boost to inflation, which will be spurred by the 10p impost. In a genuine spirit of inquiry I urge the Minister of State to consider whether it is necessary to put on this impost when he could raise the same revenue in some other way.
§ Mr. Dalyell
Much has been said about the country areas. All those hon. Members who represent such areas know that the immediate problem is the shortage of supplies to the small garages. There is a feeling that the small garages have no future and that oil company policy is to put them out of business.
This matter was referred to by my hon. Friends the Members for Edinburgh, Central (Mr. Cook) and for York (Mr. Lyon). The basic issue is whether we should leave distribution problems to the oil companies.
§ Mr. Dalyell
The hon. Member for New Forest (Mr. McNair-Wilson) nods in agreement. He also represents a country area and knows what the issue is. Is it the Government's intention to leave distribution to the commercial judgment of the oil companies, or are many small garages to have no future? I warn the Government that if small garages in country areas go out of business many people will spend petrol swanning around trying to find petrol, and will obtain it in ways that are more costly to them and more costly to the economy.
This is the consequence of a laissez faire attitude. I do not care which 1482 Department is involved. I am talking of the Government as a whole. I hope that the Government are not going to wash their hands of the problem and allow Shell, Esso and BP to ignore all but commercial interests. Many of us have written letters to Dr. Pearce, of Esso, about this matter.
Whatever the rate of VAT or petrol tax, it is no excuse for the scale of distribution of petrol in rural areas. My hon. Friend the Member for Berwick and East Lothian (Mr. Home Robertson) represents an area that is even more rural than mine. He knows that unless the problem is settled and the Minister gives an answer that indicates that the Government feel that they are responsible and that they are not going to walk by on the other side of the road like a biblical Levite, the rural areas will experience grave problems.
§ Mr. Patrick McNair-Wilson
In sight of where I live in my constituency is the largest oil refinery in Britain—the Esso refinery at Fawley. The small garage that I normally use is an Esso garage. It is now closed from 10 am on Saturday until Monday. Its supplies have been cut drastically.
The reason for that is that when the price-cutting war took place about a year ago small garages were unable to cut their prices on the dramatic scale of some of the largest garages. Esso, like other major companies, is using the amount of petrol sold by garages a year ago to calculate supplies today. Small garages that were unable to make the colossal, across-the-board cuts to attract customers a year ago are now allocated petrol on the basis of what they sold 18 months or two years ago. Therefore, in answer to the hon. Gentleman's point, the Government ought to have further discussions with Esso Petroleum and all the other major companies to make sure that the situation created by price cutting by the major outlets is not now used to starve rural garages of petrol.
§ Mr. Dalyell
The hon. Gentleman pays me a compliment of saying that I should have discussions with Esso. This problem is so serious that it is not up to individuals, or groups of Back-Bench Labour Members, to have discussions. This is a clear obligation on Government Ministers. I thought that in that long and 1483 absolutely worthwhile intervention the hon. Member for New Forest made precisely that point. Here is the problem, and the Government are washing their hands of it.
I will give way if the Minister of State wishes to comment at this stage, but I ask him a direct question. Do the Government feel that they have a responsibility in this matter, which has been raised by my hon. Friends the Members for Edinburgh, Central and for York, by the hon. Member for New Forest and by others? I get no answer now, but as the Minister of State has always been a model of courtesy in debate I hope that he will deal with this matter when he replies and has had the opportunity of talking with his officials.
§ Mr. Ken Eastham (Manchester, Blackley)
This has been an interesting debate which, from time to time, has strayed from the issue of the shortage of fuel. A case has been presented for the introduction of these vicious new taxes that are designed to act as a deterrent and minimise the problem. We need oil for a variety of purposes and one readily accepts that it is a scarce resource. However, the punitive measures introduced by the Government cannot be justified. When the OPEC countries decide to fix higher prices for their products who can blame them when Governments, unconnected with the production of oil, suddenly introduce vicious increases in prices to consumers? The OPEC countries ask why they should not increase their prices when they see that people can obviously afford to pay those prices.
If we really want to control the consumption of this valuable resource there is nothing wrong with rationing. I believe that it is morally unjustifiable for people to chase around in Rolls-Royce cars which probably consume the same amount of petrol as five Minis. Petrol is now being rationed by the purse and only poorer people will be affected. That is unjustified.
We sometimes raise our hands in horror at the price being charged by Middle Eastern countries for their oil. At the same time we read in newspapers about the rip-off profits of the oil companies. Now we have the Government introducing vicious and unnecessary 1484 taxes which add to the burdens of poorer people. Great suffering is felt at the moment by people who have to use oil for heating their homes. We must face up to the problem. If we were really concerned we ought to be in the business of conservation and the search for alternative ways of helping people with heating problems.
The situation is grossly unfair that, where there is no mains gas supply, people must use oil and pay heating bills which are twice as high as those paid by people round the corner who are able to use gas. If the Government really wanted to help to reduce oil imports and oil consumption, they could introduce some subsidies. I see nothing wrong in that. There could be subsidies so that gas mains could be laid, thereby reducing the consumption of oil.
All these factors ought to be faced, because it is unfair that one person should be able to heat his home for half the cost that people nearby pay simply because of the fluke that there is no alternative provision in his area.
§ 9 p.m.
§ Mr. Anderson
My hon. Friend will recognise that there will be a particularly adverse effect on low-income households, since if they wish to transfer from oil central heating to, say, gas central heating, they must meet not only the cost of bringing the gas from the main—which may be £500 or £600, depending on the number of neighbours who would wish to do the same—but also the cost of converting their appliance. The burden on an individual low-income household may be such as to have an adverse effect on the family's health because they cannot afford to heat the home properly.
§ Mr. Eastham
I am grateful to my hon. Friend for raising that matter, because it precisely illustrates the problem. I have received substantial representations from constituents making a plea for gas mains to be put in so that they could avoid their present punitive heating costs. I do not regard that as unreasonable.
People using gas or electricity may from time to time receive various subsidies or assistance. People can use what is called the white meter and pay for electricity on a reduced tariff if it is taken at a certain time. It is not unfair or unreasonable for people now suffering 1485 grievously under this imposition to ask why they, too, should not be subsidised.
The Government ought to face this problem and do something about it. Not only would they be helping the nation and reducing imports but they would at the same time help to reduce pollution, which is another matter coming to the forefront of people's minds. All these matters could be considered if the Government really intended to do what should be done.
The Government have no moral justification for an increase of this kind—a vicious increase of 10p which will make the poor in particular suffer. The person going about in a Rolls-Royce will not suffer. He can easily pay. If the price of petrol were trebled, he could still pay. It is the workers, the underdogs, who will be the ones to suffer.
As my hon. Friends have said, there is still time for the Government to relent. They could have a fresh look at the matter. If they had anything good in them, they would see this as one clause on which they could give way. Only two months ago, in the election campaign, one of the big arguments was about the cost of living. If this is not a typical illustration of an unnecessary and punitive increase, I do not know what is.
I hope that even today, before we go into the Division Lobbies, the Government will have a change of heart, recognise that there is no need to introduce this further tax, and agree tonight that it shall not be done.
§ Mr. Anderson
The Minister of State is an honest man. He looks up a little startled at that, but I say it in the hope that, when he replies to the debate, he will put his hand on his heart and lay bare to the Committee the Government's motive in proposing this tax. Is the primary motive energy conservation, in which case certain consequences flow, or is it a concern to spread the area from which revenue is to be gathered for the various tax cuts which the Government regard as merited? I hope that the Minister of State will lay bare that matter in due course.
It is clear that a substantial increase of duty will increase transport costs for the private motorist and for business. It will have a sharp effect on the cost of 1486 living and hence on inflation. It will have an indirect effect in raising transport costs and increasing the costs of private motoring, which is a sensitive consideration in the minds of trade union bargainers when they submit their wage claims. That is one factor that exercises their minds considerably. As we approach the new wage round that begins in August, that will be one of the fundamental considerations in the minds of those who negotiate on behalf of trade union members. It is one of the parts of the Budget, among many others, that will serve only to fuel inflation.
Part of the increase in motoring costs is outside the Government's control, just as the fourfold increase agreed by OPEC in 1973–74 was outside the control of the then national Government and the oil consumers. Equally, the recent agreement reached by the OPEC countries could not be avoided by the United Kingdom. However, the proposed increase of duty is very much within the control of the Government. It is an extra impost decided by the Government, for whatever reasons. It is a Tory tax.
We have been reminded by several hon. Members of the cries of "Shame" and the scenes of hysteria from the Conservative Opposition when about two years ago the Labour Government submitted their relatively modest proposal, by Tory terms, of increasing the tax on petrol by about 5p. There were sad stories of the effect that that would have on commuters and on low-income earners in rural areas. Such a head of steam was raised by the opposition parties that the Government were forced to withdraw their proposal.
Where are those protesting hon. Members now? Where are those who only two years ago were so eloquent and so passionate in their appeals on behalf of rural dwellers?
§ Mr. Anderson
If they have become Ministers of the Crown, I can only say "Shame on them" Shame on them for their inconsistency. Shame on them for the way in which they and other Conservative Members have posed as the motorist's friends. We can easily imagine the sort of campaign that they would have waged had the Labour Party 1487 implemented its modest proposals two years ago. Would we not have seen and heard on petrol station forecourts throughout the country the suggestion that the extra 5p or 7p was a Labour tax? I do not anticipate that when the extra 10p a gallon over and above the cost of the OPEC decision takes effect we shall see or hear that suggestion on the forecourts. If inconsistency is a political virtue, there is little virtue among those who were so eloquent only two years ago on behalf of rural dwellers and who forced, quite properly in many ways, a rethink on the part of the Labour Government.
At the time when Conservative Members were so passionate in arguing against an increase in the price of petrol, the cost was substantially less than it is now following the OPEC increases. The Conservatives are not the motorist's friends as they have posed over such a long period.
§ Mr. Wickenden
Does the hon. Gentleman accept that the difference between now and the period to which he refers is that now there is to be a reduction in direct taxation? The previous Government, which he supported, proposed to increase the tax on petrol without any reduction in direct taxation. That is the difference.
§ Mr. Anderson
Yes. But I must ask this. For whom will the greatest benefit flow from the reduction?
In his Budget speech the Chancellor of the Exchequer was careful to choose his figures illustrating the benefits flowing from those tax cuts. For example, he said that the person earning £100 a week would gain about 70p, taking into account the VAT and petrol increases but excluding the other matters that would directly or indirectly force up the cost of living.
Only a small group of the population will benefit from the cuts in direct taxation—certainly not those low income earners who rely on their motor vehicles. They will carry the burden of the 10p increase, yet they will reap no benefit from the direct tax cuts. That is the reality. If the hon. Gentleman disagrees, let him say so now.
The Government explored ways of raising revenue that would benefit the 1488 higher income earners. Their strategy is based on the fallacy that we must give incentives to that group because, somehow, investment and greater productivity will result. The gap between the high paid and low paid will be widened as a result of the reductions in direct taxation. There will be greater disatisfaction and bitterness in industrial and social relations.
Before drawing up his Budget, the Chancellor cast about for areas in which revenue could be raised. He thought that petrol tax would be a good candidate. However, while he drew up his Budget the price of petrol was going up, in any event, as a result of the decisions taken by OPEC. The Government did not have sufficient flexibility to adjust their policies to the fact that the price of petrol was going up and they added the increased burden of 10p per gallon on the motorist.
If the object were not merely to raise revenue but to conserve energy, we could seek other areas in respect of which the Government were taking energy conservation seriously. For example, why could not the Government have increased the home insulation grant or given greater encouragement in other ways? Why did the Government allow the petrol companies to reduce their supplies to British Rail at a time when, in view of the increase in motoring costs, it is in the national interest to encourage the use of public transport? Although the Government could not go as far as the Government of Sweden in reducing the cost of rail travel by half, why could they not take an initiative to encourage people to use British Rail, rather than threaten to withdraw the railway subsidy, and introduce additional ways of encouraging conservation?
One looks in vain in the Budget—or any other decisions taken by the Government—for evidence that they take conservation seriously. If the Minister or any of his right hon. and hon. Friends can point out any such evidence, I should welcome it.
My hon. Friends have pointed out that the Government are not only increasing the cost to the motorist as a result of the extra 10p, but are now apparently 1489 considering a further impost of an additional 20p as a result of their reconsideration of the proposal to phase out vehicle excise duty. That is contained in new clause No. 10 which we are now considering.
The case for and against phasing out VED and putting an additional sum on to the price of petrol has been debated over the last few years. The Labour Government considered it. They came to the conclusion at the end of last year that, on balance, it was probably justifiable. There are respectable arguments in favour of phasing out VED. The major argument put forward against the Labour Government's proposal was that to phase out VED and increase the tax on petrol would penalise the consumer at a time of petrol scarcity.
Now, of course, the consumer is already penalised. In terms of the real burden on the motorist, the circumstances are different, compared with last year when the Labour Government made their proposal.
Another respectable argument is that, at one stroke, the phasing out of VED would avoid the substantial evasion of VED which at present costs the Exchquer a great deal of money. If there were to be an attack on the evasion of VED, it would also mean employing more civil servants at a time when it was against Government policy.
There are other arguments for phasing out VED, but I shall not go through them all. They can be seen in the Labour Government's paper of last year. An increase in the price of petrol to compensate the phasing out of VED would affect the motor vehicle industry. We do not produce as many popular lower-powered vehicles as our competitors and, as the cost of petrol rises, more and more motorists will be inclined to buy smaller vehicles. The Department of Industry—the sponsoring Department—and the Treasury felt that this would have a substantially adverse effect on our balance of payments because of the increase in motor vehicle imports. That will now come about, in any event, as the increased price of petrol takes effect.
Only this week we have heard of the extent to which our own domestic motor industry depends on company purchase & An astonishing 70 per cent. of domestic 1490 car purchases in the United Kingdom are made through company accounts. That shows the extent to which the perks system has developed. It is doubtful whether salary is as important to middle management as it is thought. Other areas alongside the salary, such as the company car and the subsidised mortgage, are much more attractive. One looks in vain in the Budget for any realisation by the Government of the extent to which the perks system has developed in British industry. There is no attempt in the Budget to deal with this. I fear that the Government will draw back from any attempt to deal with this problem seriously.
Now we are told that on VED the Government may execute their first II-turn. Immediately after the election we were told by the Minister of Transport—the right hon. Member for Sutton Cold-field (Mr. Fowler)—that there was no real chance of the Government's going ahead with the previous Labour Government's plans to phase out VED. Then there was a planted question and a written answer on the very eve of the recess. Finally, there was the announcement by the Chancellor during his Budget speech that in spite of the earlier announcement it was unlikely that the Government would abolish VED and that this was now back under consideration.
As many hon. Members know, I have a particular constituency interest in this matter. The Driver and Vehicle Licensing Centre is in my constituency. It employs—and employs well—a substantial number of my constituents. I hope that when the Government come to review this whole matter, as they appear to be doing—and I notice the rapt interest of my right hon. Friend the Member for Llanelli (Mr. Davies)—they will bear in mind the substantial social costs of abolishing VED in an area of high unemployment. If the Government were to go ahead with the abolition, over the next three or four years, as VED was phased out, there would be 800 fewer job opportunities in that area.
Already young people in my area who have been interviewed for Civil Service jobs have been told that those jobs no longer exist because of the Government's ban on Civil Service recruitment. Together with the uncertainties over the steel 1491 industry and the effect of the minimum lending rate and the strong pound on the export possibilities of local companies, this means that there is an even more vital interest in the western South Wales area in the outcome of the Government's reconsideration of the future of VED.
As the Government debate this matter, I trust that they will bear in mind the vital social effects of any abolition, the remarks made by the present Secretary of State for Wales when he was shadowing my right hon. and learned Friend the Member for Aberavon (Mr. Morris)—to the effect that he hoped that my right hon. and learned Friend would fight hard in the Cabinet against the abolition of VED—and the effects on rural areas, which the Conservatives claim to espouse.
I look forward to the Minister of State's answers to some of the questions that I raised at the start of this all-to-brief intervention.
§ Mr. John Maxton (Glasgow, Cathcart)
I should like to return to the statistic that shows that 70 per cent. of motorists in Britain are having their motoring costs paid for them by their companies or other organisations. This is one of the key statistics in the philosophy of the Budget, particularly in relation to the increase in VAT and other taxes on petrol.
What this means is that, like so much of the rest of the Budget, it is a class thing. Of course, the 70 per cent. of motorists who have their petrol paid for by companies or other organisations come in the main, although not entirely, from the ranks of the better off. The 30 per cent. are usually in the lower income bracket, and they not only pay for their petrol but have to buy their cars. It is a class matter, because these people are ordinary working men and not the executive class. It benefits the well off to the detriment of the poor.
It is with reluctance that I take on the gurus of laissez faire—the hon. Member for Knutsford (Mr. Bruce-Gardyne) and the right hon. Member for Down, South (Mr. Powell)—but the existence of the 70 per cent. who do not buy their own petrol makes nonsense of the argument that the price mechanism has a direct effect on supply and demand. That 70 per cent. is not concerned with the price of petrol.
1492 The impact on supply and demand is indirect. The increased price paid by that 70 per cent. is passed on to the consumer through the company that provides the car. That in turn affects inflation. Inflation is not caused just by the increased cost in the transportation of goods but through this perk that is given to many in our society.
The consumer will want increased wages to pay the increased prices. If there is no wage increase, the consumer cannot purchase the commodity and the manufacturer or supplier will be selling fewer goods. The supply of petrol will not necessarily be cut. It is more likely that jobs will be cut and unemployment increase.
§ Mr. Allan Stewart (Renfrewshire, East)
Is the hon. Gentleman essentially arguing that every British firm that gives its executives a company car is a monopoly?
§ Mr. Maxton
I am not arguing that, but there will be a comeback on companies from the increased cost in petrol. It will impact, not on the amount of petrol consumed, but on other areas of that company's operations and ultimately on the economy.
The 70 per cent. will not reduce their consumption. They are not paying for their petrol and are not worried about the price. The private motorist who has to pay for his own petrol will bear the brunt of the increased tax.
It makes a nonsense of the Government's attempt to increase the differentials between those in work and the unemployed. Consider the case of the working man who is not very well paid but can afford to buy that old banger for travelling to work. This man does not earn much more than an unemployed man and suddenly he finds that to get to work he must afford a lot more money—either on public transport or on his own car. Therefore, in real terms the differential between the working man and the unemployed man has been reduced by this Budget.
The Budget also hits the man who pays for his own petrol and who, once again, can just about afford to run his car for weekend trips with his children. Those outings are one of his basic pleasures. 1493 This Government have hit that pleasure, just as they have hit other simple pleasures of working people—the packet of crisps for the children, the bottle of orange squash, the chocolate biscuits. Conservative Members may laugh, but these small innocent pleasures of the lowly paid are being hit by 15 per cent. VAT. The working man can no longer afford to take his kids out into the country on Sunday afternoon because he cannot afford the petrol prices.
§ Mr. Burden
Is the hon. Member suggesting that the present price of petrol is entirely due to the taxes of this Government? That is the implication of his last remark.
§ Mr. Maxton
Of course I am not saying that, but this Government have increased petrol prices to a greater extent than was necessary. At a time when petrol prices are going up anyway the Government have imposed a tax on top, and that is intolerable. Also, the rise in petrol prices outside of taxation has been made worse by the Government's refusal to allow the Price Commission to consider the increases.
I turn to the impact of these increases. We have heard a great deal about the impact on rural areas and I agree with a great deal that has been said. However, I am particularly concerned about some of the islands which surround our coastline. I holiday on an island that is only 40 miles from the centre of Glasgow—it is not a remote area in the middle of the Atlantic. That island could become rapidly depopulated as a result of the Budget. First, the cost of running the ferry across the short stretch of water will inrease as fuel costs increase.
§ Mr. Wickenden
The hon. Member is referring to marine fuel, which is my business. This is zero rated. Therefore, there will not be any increases.
§ Mr. Maxton
I accept that. However, every tanker load of petrol going across to the island is already paying large ferry dues. Already petrol costs on the island are 10p to 15p higher than those on the mainland. Tourists will not go there because they are not guaranteed petrol supplies. Garages on the island will find it difficult to survive. Among the islanders themselves, the small farmers running their tractors, and the contractors 1494 running their lorries will find fuel costs so much higher that they will not be able to compete. The depopulation that has already been one of the great sins of these islands over the past 100 years will continue and it will accelerate. There will be immense problems in rural areas—many of which are represented by Conservative Members.
I wonder if the hon. Member for Bute and North Ayrshire (Mr. Corrie)—in whose constituency is the island to which I have referred—will comment upon the matter. Such islands will be in great social distress as a result of the increase in VAT across the board and the increase on petrol. I urge the Committee to support the amendment to reduce taxation on petrol.
§ Mr. Frank Haynes (Ashfield)
I shall make a brief speech because I realise that the Government Front Bench is becoming uneasy about the time.
In my constituency, before the election Conservatives were saying that it was time for change. There was a change in Ash-field. The constituents got rid of the sitting Member of Parliament and elected me. However, the tragedy is that a Conservative Government were elected for Great Britain. Now the people are seeing the results of broken promises.
In the election campaign the Conservatives did not mention the level of 15 per cent. for VAT. My right hon. Friend the Member for Leeds, East (Mr. Healey) pointed out at that time that if a Conservative Government were elected there would be a great increase in VAT. By God, he was right! We have a Government who are cruel to the people. Many people can ill afford these increases. I shall hazard a guess that the Conservative Government will be the Government in power when the price of a gallon of petrol reaches £2. I do not believe that I am far out in that estimate, considering the present trend.
I represent people who find it difficult to live—they are struggling. They are dependent upon the county council and the district council. I refer to the elderly and the mentally handicapped. I foresee that the Nottingham county council will have to cut back on its meals on wheels service and the transport services that it provides for the mentally handicapped. 1495 People will be hit twice by the Government—first, by the increase in petrol and, at the same time, by the massive cutback in the rate support grant to the county council. I believe that the people will rise up eventually and say that they no longer want the Conservative Government. Some people are already saying it.
Many people were conned in the election. They have not really woken up yet, but they will wake up, and wake up with a jolt, and then the Conservatives will get one or two surprises from some of those who they think support them.
Allowing those who run petrol stations to charge what they like is a matter that has been mentioned time and again in the debate. They can charge what they like, and the Government do not do a damned thing about it. On television one night it was suggested by an Esso director, or somebody else who knew all about the matter, that prices would be £1.16 or £1.18, but we also saw on the television that people were sticking the price of £1.29 on the pumps.
As I said, the Government are doing nothing about it. They are taking away the opportunity to do something by their proposal to remove the Price Commission, which could have held prices steady in the interests of the people, particularly the working class and the poorly paid.
Conservative hon Members are grinning. They will not have many grins on their faces soon. With increasing petrol prices pushing up other prices to unacceptable levels the Government will have the trade unions saying "We want to be compensated for this." Some of us know what is going on over earnings. I shall have something to say when we debate the proposed increased in hon. Members' salaries. For now, I am talking about those outside and how they are affected by the massive increase in the cost of petrol. The Government have not helped with the extra 10p that they have themselves imposed.
There will be a reaction from the workers, asking for compensation. It will not be long before Conservative Back Benchers are pushing for a U-turn and a freeze. It has happened before, and it will happen again. It is the same 1496 old story. We went through it all before with previous Conservative Governments.
It was a tragic day when, on 3 May, the people did not return a Labour Government to give them the opportunity to see what a Labour Government could really do on behalf of the people. Conservative Members will be laughing on the other side of their faces in a while. I hope that they will remember my words. When Hansard is printed it will contain those words to keep reminding them.
I said that I would be brief, and I have been. I do not use any gimmicks. I speak on behalf of the people whom I represent, as I see matters. I speak from the heart. I believe that I am a reasonable man. I am entitled to express my opinion. I believe that what is being said from the labour side of the Committee is fair, and I hope that many Conservative Members will seriously consider what we have said and support the amendment.
§ Mr. Peter Rees
The hon. Member for Ashfield (Mr. Haynes), who is new to the House and the Committee, has contributed to our debates both yesterday and today. I was not oppressed with quite the same sense of tragedy as seemed to envelop the hon. Gentleman's speech.
I turn with slightly more pleasure from the gloom with which the hon. Gentleman enveloped me, and perhaps other hon. Members, to the hon. Member for Swansea, East (Mr. Anderson), to whose blandishments I respond. He described me as an honest man, and compliments are hard to come by in this Committee. In addition, longer ago than either he or I care to recall, he was my Member of Parliament. He invited me to describe the Government's strategy. It may assist the Committee if I explain briefly, before turning to the amendments we are discussing, the strategy which led the Government to increase the hydrocarbon oil duties to the extent that they have done.
It is plain to observe that there is an energy problem. The aim and the object of many civilised and industrial countries is to reduce their consumption by 5 per cent. We can debate legitimately how 1497 that reduction is to be achieved. There are Labour Members who would willingly take on the whole apparatus of rationing. I have no doubt that this was in the mind of the hon. Member for Ashfield.
§ Mr. Rees
It may be a good point. I am delighted that the hon. Member for West Stirlingshire (Mr. Canavan) is joining our debate. He will perhaps also confirm that he has no desire to inflict on the long-suffering people of this country the whole apparatus of rationing. There is an alternative solution that may not commend itself to the hon. Gentleman and his friends. It is the interplay of market forces.
§ Mr. Rees
That evokes a predictable response from hon. Members on the Labour Benches. I have yet to hear a credible alternative, at least in this debate. There may be other opportunities.
The most notable contribution on this matter was that of the right hon. Member for Down, South (Mr. Powell). I am bound to say, although it is obviously a reflection on me rather than him, that I lost the thread of his argument at a certain stage. He seemed to be suggesting that the imposition of duties at this rate clogged, rather than eased, the play of market forces. The right hon. Gentleman asserted—he may be right—that these taxes are designed to suppress demand. Indeed, they are. What we hope to achieve, in effect, is to set the balance between supply and demand at a different point from that struck as recently as four months ago. This is surely a legitimate objective, although the right hon. Gentleman may be sceptical about the force that these tax increases will have.
If the right hon. Gentleman concedes at least that demand will be suppressed in a situation where there is a finite 1498 supply of oil, this must surely be a legitimate objective and a legitimate means of achieving this objective.
§ Mr. J. Enoch Powell
Taking into account what the Minister says, his case appears to be that the market price, the supply and demand price, without the tax, would not bring about a reduction in the consumption of petrol and that the tax is the element that brings about the 5 percent. reduction. He now has to justify a 5 per cent. reduction if, in the open market, on market principles, the consumption would remain level at the market price.
§ Mr. Rees
I suspect that what lies between the right hon. Gentleman and myself is the time-scale over which market forces would operate without the interposition of this tax. I would assert that this tax may accelerate the process, which perhaps both the right hon. Gentleman and the Government would seek to achieve. I hope on that basis that the right hon. Gentleman will see that the tax is well conceived and that he will be able to give us his support at a later stage this evening.
§ Mr. Anderson
Is it not unrealistic to talk about market forces in this context, since many of the decisions are political rather than economic decisions by the producer countries, often on a capricious basis, and since a substantial part of consumption in this country—70 per cent. of consumption—is not relevant to the market anyway?
§ Mr. Rees
Political considerations may affect the OPEC producers. No doubt they do, and no doubt to a degree that is what affects the supply side of the equation. But the mere existence of political factors does not invalidate the proposition that this country faces the alternatives of rationing or at least the interplay of market forces. The point that I was taking up with the right hon. Member for Down, South is that he seemed to be suggesting—I may have misunderstood—that this tax would clog rather than ease the play of market forces. That is the only point that I was seeking to establish.
There is another objective which is legitimate for any Government—that is, to raise sufficient revenue for their needs. In a full year, these increases will yield 1499 £525 million, and even in this year £400 million. Those sums are not lightly to be disregarded. Hon. Members who are tempted to vote against these increases are honour-bound to explain how they would replace them. We have been around this course before.
§ Mr. Rees
It has been my misfortune to intervene all too often—and perhaps the misfortune of the Committee too. I know how the battle lines are drawn. The hon. Member for Swindon (Mr. Stoddart) made a long and powerful speech and we know that he would favour leaving the levels of indirect taxation where they were when we took office. I would only say that that is one of the precise issues on which the electorate were invited to express their view. They have done so loudly and clearly and we have hearkened to what they said. It is up to the hon. Gentleman to adjust his thinking to that of the electorate.
§ Mr. Denzil Davies
Did the Tory Party say during the election that it would put a tax on petrol to raise money to pay for cuts in direct taxation?
§ Mr. Rees
The right hon. Gentleman is not as naïve as he sometimes pretends. We said rather more loudly than his right hon. Friend the Member for Leeds, East (Mr. Healey) that there should be a shift from direct to indirect taxation. His right hon. Friend was saying the same thing but in muted tones, because he was not certain whether his right hon. and hon. Friends and the Labour Party associations would have exactly welcomed that proposal. However, because he had been presiding at No. 11 for a long time and because of his undoubted capacity—if I may say so without being patronising—he could see how the wind was blowing and he knew also that there had to be a shift.
Although the right hon. Member for Llanelli (Mr. Davies) chided me earlier for quoting that perceptive article by Mr. Peter Jenkins in The Guardian—
§ Mr. Rees
It may have been withdrawn—I know the subtle pressures and blandishments that the right hon. Gentleman can bring to bear—but let us not argue about the precise form of the Budget which the right hon. Member for Leeds, East would have introduced if he had been standing at this Box earlier this summer.
The right hon. Member for Llanelli knows—he was long enough in the Treasury—that to achieve a public sector borrowing requirement of £8½ billion, a Labour Government would have had to do something fairly drastic and they would have had to do it by means of indirect taxation. The only difference is that they would not have made the bold and imaginative cuts in direct taxation that the Chancellor has proposed. But we shall be able to come to that tomorrow, when the right hon. Gentleman will be able to give his no doubt highly informed view of how he would have constructed the Budget and where he would have put the weight of his tax impost.
Those are the two objectives, which I think are worthy and which I think deserve more widespread support than the Labour Party is at present disposed to give them.
I turn now to the way in which the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) moved the amendment.
The leader of the Liberal Party referred to the indexation of goods and services. With courtesy the right hon. Gentleman invited me to debate that issue. I do not wish to dodge that invitation. I shall be happy to debate it on another occasion, but the Committee has been sitting for two days and it would not be appropriate to range far on that matter at this stage. I emphasise that the proposals involve a measure of revalorisation back to 1977. The Liberal amendment 1501 takes us back only to 1978. If anything, we have gone further than the Liberals propose.
The retail price index impact is 0.25 per cent. Opposition Members spoke wildly about these measures stoking the fires of inflation. I wish that in the dark days of 1976–77 inflation had been fuelled at only that rate.
The right hon. Member for Roxburgh, Selkirk and Peebles rode an old hobby horse—the idea of differential fuel duty. Of course that is attractive, but when one investigates the practicalities it does not stand close examination. For good or ill we live in a small archipelago and it is all too easy to cross regional boundaries to fill up our petrol tanks. The administrative difficulties would be considerable and the expense enormous. The administrative superstructure would not justify the results.
§ Mr. Penhaligon
The oil companies operated this system for a considerable time. The basic price of fuel in Scotland and other distant regions has always been at least 1p more than it is in London.
§ Mr. Rees
The hon. Member is talking about a differential that involves the cost of transportation. I am making a diffferent point. I appreciate the hon. Member's anxiety, since he represents a Cornish constituency, but his argument does not support the proposition advanced by his right hon. Friend the Member for Roxburgh, Selkirk and Peebles.
The hon. Member for Gateshead, West (Mr. Horam) discussed amendments that are designed to go over the ground that he was tilling thoroughly when he occupied a position on the Government Benches. Obviously he is still enamoured of a switch from vehicle excise duty to increased petrol duties.
At this hour of the night it is not appropriate to open up that debate. We have said that we shall deal with that matter. The hon. Member made a tentative step, which I do not think will commend itself to the Committee. We should let it rest.
Inevitably, the hon. Gentleman said that the increases would justify further wage claims. He disregards the cuts in direct taxation. We are entitled to pray in aid the strategy that the right hon.
1502 Member for Leeds, East deployed in 1977. All that was offered was a tentative cut of 2 per cent., which eventually was shaded down to 1 per cent. The present Chancellor of the Exchequer has made a more generous offer to the country—if one talks about it in those terms which I do not. I hope that account will he taken of that.
The hon. Member for Gateshead, West then said that the increases justified the OPEC oil increases. All that we are doing is revalorising these duties back to 1977. There is no provocation or incentive to the OPEC countries to make what we are doing a pretext for further price increases.
The hon. Member made some fine points about price elasticity. If he is really worried I shall inflict an answer on the Committee. The available evidence suggests that a price increase of x per cent. leads to a fall in consumption of about 0.2x per cent. in the short term. In the long term, considering factors such as changes in the buying habits of car owners; the reduction is probably about 0–4x per cent. I leave the hon. Gentleman to digest and apply those figures.
§ It being Ten o'clock, THE CHAIRMAN left the Chair to report Progress and ask leave to sit again.
§ Committee report Progress.