HC Deb 07 May 1985 vol 78 cc661-77

Motion made, and Question proposed, That the clause stand part of the Bill.

5.32 pm
Mr. Terry Davis (Birmingham, Hodge Hill)

I wish to oppose the clause.

In his Budget speech on 19 March, the Chancellor of the Exchequer announced an increase of 4p per gallon in the tax on petrol and 3½p in the tax on derv. The clause puts those increases into effect.

At the time of his announcement the Chancellor explained that the increase in the tax on petrol and derv was in line with inflation. On such occasions, the Chancellor usually describes that as "indexing." He always uses that word as if it settled all argument and as if indexation were a mysterious fiscal force with which we interfere at our peril. If his argument is accepted at face value, it means that the relationships between one tax and another, between taxes and price levels, and between a tax and a commodity on which it is levied, are fixed, immutable and impossible to change. My hon. Friends and I do not agree.

We believe that it is important for the House to review such taxes from time to time and to consider whether the tax on a particular commodity or activity has been established at the right level. It is time for the House to take a hard look at the taxes on petrol and derv.

We must consider the taxes against the background of the statement of the Chancellor's predecessor, who said that petrol tax is "a selective expenditure tax".

We must also consider the taxes against what has happened since the Conservative Government took office in 1979. At that time the motorist paid about 88p for a gallon of petrol, and the tax was 40p. During the previous five years, both the price of petrol and the tax on petrol increased, but the tax was increased by less than the net price for a gallon of petrol—the price before tax—both in absolute terms and proportionately so that the tax accounted for 44 per cent. of the price at the pump. That was the position at the end of the Labour Government's term of office.

Since then we have had six years of Conservative Government. The pump price of a gallon of petrol has continued to increase. Indeed, it has more than doubled. It has increased from 88p to more than £2. Conservative Chancellors have increased the tax even more sharply. The tax on a gallon of petrol has risen from 40p to £1.07. Under the Conservative Government, the tax on petrol has risen, again in absolute terms and proportionately, by more than the general rate of inflation. Most of the increase in the price of petrol has occurred as a direct result of those tax increases. Taxes now account for 54 per cent. of the price paid by the motorist compared with 44 per cent. six years ago. That is why we now pay £2 for a gallon of petrol.

Mr. D. N. Campbell-Savours (Workington)

Does my hon. Friend agree that the wider nature of the deception that has taken place is that, on the one hand, Conservative Ministers talk on television about having reduced income tax while, on the other, they conveniently avoid referring to this draconian increase in tax, which affects the great majority of the population? Is that not a deception?

Mr. Davis

I agree with the thrust of my hon. Friend's intervention. It is a deception for the Chancellor and Treasury Ministers to appear on television and talk about reductions in taxes when they increase a tax which bears heavily on those with the lowest wages.

As a result of six years of Conservative Government. the price of a gallon of petrol is £2. The movement in prices and taxes on derv has been similar. Together, those taxes, as a proportion of the Government's revenue from all taxes, have risen from about 5.5 per cent. to more than 6 per cent.

The fact is that the Government are prejudiced against the private motorist. They are not interested in people who buy their own cars, drive their own cars and pay for their own petrol. They are interested only in people who have cars provided for them, not as a tool of their trade but as a perk of their position.

The Government's record on petrol tax is wholly indefensible. I am not surprised that Ministers are reluctant to come to the Dispatch Box today to explain why they are again increasing the price of petrol. They have already increased the price by more than they should have done, and there is no way that they can use what has happened in the past six years to justify the increase this year.

Nor can Ministers justify this year's increase by pointing to what has happened since they increased the tax a year ago. In recent months, we have seen a massive increase in the price of petrol at the pump, thanks to price increases by all the major oil companies. When we debated the issue in Committee a year ago, the motorist paid about £1.70 a gallon. Now he pays £2 without the Chancellor's tax increase, and with it he pays £2.04. Even without the Chancellor's help, the price of a gallon of petrol has risen by 18 per cent. during the past year—more than three times the general level of inflation. In those circumstances, it is not unreasonable to expect the Chancellor of the Exchequer to forgo any further increase in tax, for this year at least.

Surely we all accept that increases in the prices of petrol and den, are a direct cause of inflation? At a time when inflation is beginning to creep up again, it is common sense for the Chancellor to do everything he can to avoid making it worse. If he is serious about achieving zero inflation, even Ire must understand that it will never be achieved if he increases taxes for the coming year in line with inflation during the past year.

The impact of the tax is selective. It was the Chancellor's predecessor, the right hon. and learned Member for Surrey, East (Sir G. Howe), who described it as a selective tax, deliberately biased against those living in rural areas and deliberately biased against those who have no option about the method by which they travel to work".—[Official Report, 9 May 1977; Vol. 931, c. 937.] The Government's record in the past six years shows that they, too, are biased against people who have no option about the method by which they travel to work and against people living in rural areas.

It is not only the people living in rural areas who are affected by the tax on petrol, but it is true that they are affected even more than people living elsewhere. For many people in rural areas there is no alternative to using a car. That is why some of the areas with the lowest average incomes have the highest levels of car ownership. I thought that the Chancellor was claiming in his Budget that he wanted to help people on low wages. What is the point of reducing their national insurance contribution with one hand if with the other hand he insists on increasing the cost of getting to work? Where is the incentive in that? Indeed, why work? But it is not only a matter of getting to work. Children have to be taken to school, people have to get to the shops, to the post office and to the chemist. For people in rural areas, the car is not a luxury; it is an absolute necessity for getting anywhere.

The car is also increasingly becoming a necessity for many people living in urban areas and the suburbs, not least as a result of the Government's attack on bus services through the "Abolition of Public Transport Bill." In short, the Chancellor and the Government do not seem to understand that driving is not in the same category as drinking, smoking and gambling. Taxes on petrol and derv should not be increased automatically—almost casually—by the Chancellor, without thought, without any regard for inflation and without any regard for those people for whom a car is a necessity. That is why we want to delete the clause from the Bill.

Mr. Austin Mitchell (Great Grimsby)

I support the extremely perceptive and effective attack on the clause by my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis). We shall be voting against it for several reasons.

The Government's position on the measure seems to be to pass it off as the normal kind of adjustment for inflation, and nothing to bother about—a simple updating of the figures. They are trying to pass it off as something which need not excite any interest or attention. If the Conservative party were in opposition and a similar increase had been proposed by a Labour Government, the Conservative Benches would have been crammed; instead, they are almost empty, giving the impression that there is nothing abnormal about the clause.

The increase in the duty on petrol comes on top of the massive jump in petrol prices which, as my hon. Friend said, has occurred this year. The oil companies seem to get it both ways. When the dollar goes up, they increase the price of petrol at the pump to allow for the increase in the dollar. When the dollar comes down—and it will almost certainly come down even further—there is no corresponding reduction in the price of petrol. The ratchet works only upwards and in favour of the oil companies.

5.45 pm

The dramatic price increase this year has brought us to the £2 gallon of petrol; indeed, in Grimsby, it is over £2. In Grimsby, petrol prices at the pump are substantially higher than in other parts of the country because of the nature of the distribution system. We have within a few miles of Grimsby a major refinery, and our petrol comes from that refinery, but it is still dearer to buy in Grimsby than in areas that are more remote from that refinery.

A gallon of petrol at the Texaco pump in Grimsby costs 204.6p; at the Total pump it costs 203.7p. That is substantially higher than the price that motorists have to pay in the major conurbations; therefore, a grievance will be exacerbated by the increase. The grievance will be felt even more strongly with the elimination of public transport as a result of the Transport Bill.

Public transport has to be cost-subsidised in an age when more and more people have cars. There will be an increasing need for cars as the major carriers, exposed to the pressures of unreasonable competition as a result of the Transport Bill, are forced to increase their prices. The clause has to be smuggled through, as it were, before the disastrous effects of the Transport Bill are felt.

Had the increase been proposed by a Labour Government, there would have been substantial howls of outrage from Conservative Members. The Labour Government's record in increasing taxation on petrol, although it aroused massive outcries from the Conservative party, then in opposition, was far better than that of the Conservative Government. The Labour Government's approach was far more sensible and far more moderate and did not involve the massive increases in petrol taxation which have been carried through by the present Government.

The previous Chancellor of the Exchequer pleaded that he was simply bringing our petrol prices into line with those in other parts of Europe. Since then, prices in Britain have increased to the point where they are ahead of those in several European countries. In the last quarter of last year, the average petrol price at the then prevailing exchange rate, for 4-star or equivalent petrol, was 42p per litre in the United Kingdom. The price has increased substantially since then. In Grimsby it is now 45p per litre. That compares with 36p per litre in Luxembourg and 39.2p per litre in West Germany.

Thanks to the efforts of the Conservative Government, we now have expensive petrol in Britain, and the Government seem to regard the car as a luxury. In places such as Grimsby and in the surrounding country, the car is an absolute necessity for getting to work and for getting around. It is necessary even to get the children to school, given the running down of rural bus services.

Mr. Richard Wainwright (Colne Valley)

The hon. Gentleman is making a powerful plea for market forces to be allowed to have their way. He has just praised, by inference, European countries where market forces rule. Does it not enter his mind that where a commodity is accepted as being both essential and strictly finite in the quantity available there might just be a case for introducing some planning and, through the tax system, some measure of Government interference?

Mr. Mitchell

The Liberal party now seems to be arguing for higher duties on petrol, whereas in 1977 it used its participation in the Lib-Lab pact to argue for lower duties. It is an example of the intellectual equivocation in which the Liberal party indulges from time to time. There is a case for adjusting the duties in the light of the heavy increase in petrol prices that has occurred in the past year. The hon. Member for Colne Valley (Mr. Wainwright) described petrol as a finite resource. He should read the article by Professor Odell in the latest Lloyd's Bank Review. Professor Odell tells us that petrol reserves increase year by year. The cry that we should tax a finite resource to discourage use is one which I cannot accept. It runs exactly contrary to my argument.

The increase in total tax on petrol, including VAT, has been 67p in the Government's lifetime. The tax take, including VAT, that they inherited from the previous Labour Government was 39.9p per gallon in May 1979 and it is now 106.7p. That is a ludicrous level of tax, including VAT, when we consider that the £2 gallon is with us.

We must vote against the clause as a protest on behalf of the average motorist. The business user will not be hit by the Government's proposals; he is the friend of the Government and he is heavily subsidised by them. He will not feel the effects of the increase in price. The Opposition speak for the average motorist, many of whom have older cars and live in areas where there is inadequate public transport. For many such motorists their car is a daily necessity of life and they are finding the costs of motoring an increasingly difficult burden to bear, especially in the light of the petrol price increases which have been sanctioned by the Government and which are now to be supplemented and heightened by the proposals in the clause.

Mr. Campbell-Savours

The intervention of the hon. Member for Colne Valley (Mr. Wainwright) was fascinating. It revealed current thinking in the Liberal party on what its position should be on items that are scarce. Apparently the hon. Gentleman thinks that taxation of a finite resource is a way of dealing with price and supply. That is exactly the argument that would be deployed for charging higher prices in times of food famine. I find it hard to believe that the Liberal party would wish to subscribe to such a crude use of market forces in the curtailment of demand. However, the hon. Gentleman's intervention is on the record, and unless he seeks to intervene in the debate we must take it that that is his finite position. Indeed, it will so be pressed at the time of the next general election.

The price of diesel has strong regional industrial cost implications. When the Minister replies he should address himself to the argument that I am about to advance, which is advanced also by many in industry, especially in manufacturing industry, who are not within our central conurbations. I understand from the excellent presentation of my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) that 47½ per cent. of the price of diesel is tax and that the tax take has risen from 41.9p in 1979 to 93.4p in 1985, which is substantially more than double.

Who is affected by the increased tax take? We know that a small minority of the population has diesel cars. The greatest consumer of diesel or derv is industry. The larger the capacity of a heavy vehicle and the further that that vehicle has to travel to deliver the goods which it carries from the point of manufacture or distribution to the point of receipt—for example, the retailer or central wholesaler—the greater are the costs that fall upon industry. If a bed manufacturer in Slough, for example, sends a container of beds to London, he will pay far less for the distributiion of the beds than a similar manufacturer in Cumbria, the north of Scotland or Wales, because the distance travelled by the lorry will be further when it leaves the manufacturer in Cumbria, the north of Scotland or Wales.

When we impose higher taxes on diesel, we are increasing disproportionately the costs that fall on the industries which exist far from the centres of population and our central markets. Inbuilt in the price of diesel should be a form of regional consideration which takes into account the special problems within manufacturing industry in the regions.

I took the example of a bed manfacturer for a particular reason. The bulkier the goods, the more aggravated becomes the condition. Almost invariably the bulkier the goods, the lower the price of the load. That means that the cost of transporting the load from a major plant in the regions back to the central area is proportionately greater. That must apply when it is transported to our main conurbations and our principal markets. These are considerations which Governments should take into account when formulating policy on the price of diesel.

The inbuilt regional disincentive is aggravated further by the tax increase which has been imposed on heavy vehicles. It is so large that it will lead to an increase in costs for manufacturing industry that will be disproportionate in the outer regions. The calculations which were undertaken by a newspaper—I hope that they are accurate—show that the tax increases imposed on the operators of heavy lorries have been between 9 per cent. and 29 per cent. For a 15 to 17-tonne lorry, the rate of duty will increase from £850 to £1,330, a 21.1 per cent. increase. For a three-axle, 23 to 25-tonne lorry, duty will be increased from £1,250 to £1,610, a 28.8 per cent. increase. For a 29 to 31-tonne vehicle with four axles, duty will be increased from £2,100 to £2,420, a 15.2 per cent. increase.

These figures have a direct bearing on the clause because collectively they operate to the disadvantage of producers in the regions who have to carry higher and higher costs. To go on and on about environmental damage and the need for hauliers to pay for the environmental damage that they inflict is entirely to ignore the impact upon hauliers of the new regime of taxation. It might seem that I am taking a minority position and that hauliers, with their large trucks, might be unpopular environmentally. However, they are extremely popular in areas where their work is essential in servicing the infrastructure of manufacturing industry, which are invariably areas of high unemployment.

When introducing his Budget the Chancellor of the Exchequer said that his proposals for heavy lorries would deal with the environmental damage that they cause. However, I hope that the Minister who replies will take into account the arguments that I have endeavoured to advance, which will be echoed by hauliers throughout the regions of the United Kingdom, and certainly in my constituency.

One of the most remarkable features of the past few years has been the public's complete lack of response to the substantial increases of tax levied on petrol. It has increased from 39.9p to 106.7p a gallon, or 167 per cent. That is substantially greater than the rate of inflation during the same period. My hon. Friend the Member for Great Grimsby (Mr. Mitchell) mentioned the differential of 1p in the price of petrol at garages in his part of the country.

Mr. Austin Mitchell

My point chimes in with what my hon. Friend said about derv. The increase in the tax on petrol and derv is an especially heavy burden on parts of the country such as we represent as we depend heavily on transport. In my part of the country, motorists already pay substantially more on average for petrol, even at discount garages, than do motorists in metropolitan areas.

6 pm

Mr. Campbell-Savours

I am not convinced that we are paying substantially more. I remember when we were paying substantially more. I can remember differentials of 10p or even 15p a gallon between parts of Scotland, the north-east, Cumbria, the midlands and the south. The differentials still exist, but they are small—only 1p or 2p. Why are there no longer large differentials? Is an unofficial cartel in operation in the market? Have petroleum producers agreed to ensure that competition is not so strong that their margins are interfered with?

I have read reports today that petrol companies are beginning to get back into profitability. Will that have a bearing on prices paid by consumers? If there is an unofficial agreement between petroleum manufacturers and distributors, that may constitute an anticompetitive practice under the terms of the Competition Act 1980. That Act provided that, when it could be established by the Director General of Fair Trading that an anticompetitive practice existed, the Secretary of State could act to stop it.

Will the Minister consider whether there is scope for a reference under the 1980 Act to establish whether an anticompetitive practice is being run? If there is, the public must be informed. It would not be in the public interest to retain it. The only person who can know whether there is such a cartel is the Minister as he has privileged access to information. Britain does not have a monitoring programme to ensure that the public interest is protected. In the present conditions of reducing competition, the Government should seriously consider such a programme to protect the public.

We should consider the effect of increased taxation on rural dwellers. Many of them travel substantially more than the 9,500 miles a year which motoring organisations regard as average. Those who cannot afford to use cars must use buses. They are now required to bear the brunt of a succession of Government initiatives on bus policy.

We had the cut in bus grant in 1981, which damaged the ability of municipal undertakings and bus operators to buy buses, and there has been a cut in transport supplementary grant, which has an effect on revenue support for buses in rural areas. The buses Bill is in Committee and also affects rural areas. We should bear in mind all of those measures when considering the Budget.

This is one year when the Government could have forsaken tax increases such as these to safeguard regional industry and the interests of the travelling public. They have failed to do so, and the public will now have to decide what to do about it.

Mr. Stuart Randall (Kingston upon Hull, West)

I should like to speak as a Socialist who represents a deprived part of the country where male unemployment is about 20.6 per cent. and where there is unusually low car usage. I know from my constituents that the Government's imposition of tax on petrol, which has led to a £2 gallon, has hit them hard, especially the less well off and those who live on unemployment benefit.

It now costs £16 or £18 to fill the tank of a small family car. For people earning perhaps £60 a week, that is a substantial proportion of their income. As my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) said, a car is no longer a luxury. It is a necessity, especially for people who live in rural areas. Bus services have been reduced in many rural areas. Many people, especially the elderly and those on pensions, face difficulties when they have to go to the chemist to collect a prescription. The increase in petrol prices has hit them pretty hard.

People who live on family income supplement simply cannot afford to fill up the petrol tank after having paid the other bills associated with owning a necessary car. The Government have increased taxation far more quickly than did the Labour Administration.

Let me examine Government revenue, using 1975 prices. In 1974–75, Government revenue from taxation on petrol and derv was just over £1.5 billion. When the Labour Government left office in 1978–79, the figure had dropped to about £1.4 billion. Now, in 1985–86, with the increases referred to in the Bill, the revenue has gone up to £2 billion. At constant 1975 prices, that is an increase of about 43 per cent. I believe that people in my constituency are pretty unhappy about that increase.

In west Hull we also have industries. Hull is a pretty entrepreneurial place. It always had a fairly wide base of industries. We all know that these days we have to keep costs down to be able to employ people and make profits. The increases in fuel costs which the Government have created through higher taxation mean that our industries are less able to compete with countries in Europe and with the United States. Those who have been in the United States will realise how low the cost of fuel is there compared with this country.

In the Bill, the Government do not encourage the use of derv. At the moment the Government are not showing discrimination in favour of a fuel which is basically very economical. There is now an increase in the number of private cars using diesel. There is the disadvantage of the diesel knock and lower performance than one gets with a car using petrol, but I should like the Government to take steps to encourage the use of diesel cars. The gap that one saw even as recently as a year ago is being eroded. That is very sad, because there are strong environmental arguments, which I shall not develop now, but which are important, for using diesel fuel.

The point touched on by my hon. Friend the Member for Workington (Mr. Campbell-Savours) is also important. At the moment the regions could be helped, particularly when one takes into account the way in which industry has moved to the south and the way in which the regeneration of industry seems to be taking place in the south rather than in the north.

If one looks at the total tax on petrol and derv, including VAT, one can see that from May 1979 to May 1985, in pence terms, the increase in petrol has been 67p, and the increase in derv 52p. I ask the Minister to consider widening that gap so that there is greater discrimination in favour of diesel vehicles, for the reasons that I have given.

Mr. Campbell-Savours

Is my hon. Friend aware that another system is used by the Icelanders, and by people in some other countries, too, whereby a substantially greater cost is attributed to the tax disc, and the price at which diesel is made available is the heating oil price? The effect is that high user vehicles are invariably diesel and there is an incentive for manufacturers to ensure that their representatives are provided with diesel vehicles, with the consequent effect on the environment.

Mr. Randall

I am grateful for my hon. Friend's intervention. With a diesel vehicle, one has a higher capital cost and supposedly a low running cost. What seems to be happening is that the running costs are becoming closer to those of petrol vehicles, so that it takes longer to write off the higher capital cost. I see that as a disincentive for people to use diesel vehicles. The essence of a diesel vehicle is that it is more economical over longer distances.

6.15 pm

The Government have claimed that the increases that we have had have been essentially to match inflation. I understand that the tax increase in petrol and diesel alone amounts to only about £250 million. Bearing in mind the large increases in petrol and oil costs, I would have hoped that this time the Government would help people and industry, and encourage the improvement of the environment, by using the revenues in a way that would not cause people hardship, would not be a disincentive to using diesel, and would not impose high costs on industry.

Mr. Mark Fisher (Stoke-on-Trent, Central)

It is suitable that we are starting our consideration of the Committee stage of the Finance Bill with clause 3, because in this one clause we see the Government raising taxes, particularly indirect taxes, which will hit hardest the lowest paid and people on low incomes in our communities, hindering rather than helping small business, in spite of what the Prime Minister professed in her statement this weekend, and also hindering and hitting rural areas. Those are all things about which we shall continually hear throughout our deliberations in Committee. Therefore, it is suitable that we start with a clause which exemplifies so many of the things that are wrong with the Finance Bill. After that opening statement, the House will not be surprised to learn that the Opposition will oppose the clause, as we shall oppose the Bill all the way through.

I am sure that it has not escaped your notice, Mr. Crouch, that the Government Benches are not packed with hon. Members who are anxious to speak in favour of the clause. Indeed, we have been debating it for more than an hour, and not a single argument has been voiced in support of increasing oil taxes. I suspect that the Minister will be the only person who can rustle up even half an argument in favour of the Government's proposals in the clause. He will lose the argument on this debate and this part of the Bill, although he may hope to carry his hon. Friends with him in the Lobby afterwards.

It is suitable that we are starting with this clause not only because it exemplifies so much that is wrong but because it is about oil. The whole of the Chancellor's Budget, and, indeed, his whole financial strategy, is totally dependent this year, more than any year. on oil. The extreme windfall of the weakness of the pound has increased the money available to the Chancellor from an estimated £9½ billion to £12½ billion. Credit is not due to the Government for that windfall; it was not created by their economic management. It is a windfall of £2½ billion or £3½ billion depending on the level of the pound against the dollar on any day. But for that, the Government would be revealed in the Finance Bill and the Budget as not having an economic strategy, and their failure would be even more obvious and blatant.

The clause is appropriate also because oil has been, apart from the Government's biggest windfall, their biggest failure. Their inability to harness the benefits of that oil to the advantage of the people and manufacturing industry will be the thing most remembered about them in the years to come. In the past six years—many Conservative Members know this, have recognised it and have spoken about it, particularly outside the House, although occasionally they have had the courage to do so inside—the Government have squandered every penny earned from North sea oil. No matter how much they put up the taxes, it will be to the discredit and detriment of manufacturing industry that the Government have maintained such a policy.

The Government have chosen to use oil as a weapon against inflation and to control the supply of money. They have not chosen to invest in infrastructure, and in the manufacturing infrastructure in particular. Every sane Member, on either side of the House, knows what the Government should have done with the oil wealth. The hon. Member for Fareham (Mr. Lloyd) does not seem to believe that that is true, but as a Whip he should know more than anybody else what Conservative Back Benchers feel. He must know that they recognise the desperate and tragic waste of oil revenue over which the Government have presided.

The increase in petrol tax levied by the clause brings the increase in petrol tax for the past six years to 167 per cent. Members of the public may be interested to know that when they buy their petrol at around £2 a gallon, £1.06 goes to the Government. As they do that every day and see over 50 per cent. of the cost of their petrol going to the Government, they might ask themselves what the Government are doing with those taxes and to what extent industry is benefiting from the use of those taxes by the Government.

I am anxious to hear what the Minister will say in defence of this provision. In particular, when he comes to defend this sad but mercifully brief clause in a long Bill, will he explain what research his civil servants have done on the transport costs to manufacturing industry? Will he own up to the fact that there will be knock-on effects for small businesses and for businesses located in rural areas? What will be the impact on transport costs, and therefore on unit costs?

In addition, will the Minister speculate on how far he thinks he can go in milking this sector of tax? The Government are searching for tax revenue, but are reluctant to face the issue of direct taxation. Therefore, will we see the £2.25 per gallon in the lifetime of this Government, or will it cost even more?

I say this more in hope than expectation. The Committee should vote against the clause because it shows that the Government are committed to being the party of higher taxation. It puts up tax, and does not help industry or the small businesses which the Prime Minister has said she wishes to help. She must know that, by putting up petrol costs, and therefore transport and distribution costs, for the small businesses which she hypocritically claims she wishes to see get off the ground, she is making it more difficult, not easier, for them to prosper. I hope that we shall see the end of the clause, and I look forward to seeing how the Minister can possibly defend his party—the party of high taxation.

The Minister of State, Treasury (Mr. Barney Hayhoe)

I welcome you, Mr. Crouch, to the Chair during our considerations on the Finance Bill. I trust that you do not have to occupy it for quite as long as some of your predecessors did last year.

The hon. Member for Stoke-on-Trent, Central (Mr. Fisher) said that it was appropriate to begin our discussions with this clause. I do not dissent from what he said in that regard, although I do not accept many of the exaggerated and rather absurd arguments that he then deployed.

It was interesting to see the hon. Member go through the ritualistic assertions always made by the Opposition—certainly made by my hon. Friends when we were in opposition—that the Government are rather short of supporters in these debates, and the Opposition are providing most of the content of the debate. I have heard this ritualistic charge made before. I hope that I shall continue hearing it made by Labour Members on Opposition Benches to Conservative Members on Government Benches for many years to come.

As the hon. Member for Birmingham, Hodge Hill (Mr. Davis) acknowledged, the increases imposed by this clause maintain the real value of the yield from oil duties. As my right hon. Friend the Chancellor said in his Budget speech, they do no more than keep pace with inflation. I can confirm to the hon. Member for Kingston upon Hull, West (Mr. Randall) that the increases are expected to increase revenue in a full year by £250 million, although I would not agree with his comment that it was "only" £250 million. It is a sizeable sum, of which petrol will yield £200 million and derv £50 million.

The immediate effect of the duty increases on the retail price index is about one tenth of 1 per cent. This is solely due to the petrol increase because derv is not represented in the RPI, although there is an indirect effect which is difficult to quantify and depends on the extent to which, and how rapidly, businesses pass on the increased fuel costs to their customers.

The increases on petrol and derv are no more than are required to revalorise the duty, having regard to the RPI movement during the past year. The oil duty is a significant revenue raiser, the total estimated yield being nearly £6.5 billion in 1985–86. It would be difficult to raise an equivalent amount of revenue elsewhere, and successive Governments have always seen oil as a source of considerable revenue.

In view of the comments that have been made, I shall compare what happened here to what happened in Europe. The advice that I have received is that, as a result of the increases in this Budget, the total tax burden—that is duty plus VAT—remains in real terms below the peak reached in 1975, under the last Labour Government. My hon. Friends who have been listening to the debate will be rather surprised, in view of the comments that have been made, to hear that, despite the significant increases that I accept have been made, in real terms we have not returned to the peak achieved at the end of 1974 and early 1975.

I never like to use statistics unfairly. We can all trade statistics, and I wish only to get the matter into perspective. I accept that there was a sharp peak, from which the price came down.

Mr. Campbell-Savours

That is not true.

Mr. Hayhoe

I would be prepared to produce the figures that I have been given on this by the officials who have worked them out. In real terms, taking the duty at 1985–86 prices, the typical total tax burden per litre is 23.80p at present and was 24.47p at the end of 1974 and the beginning of 1975. In 1970–71, it was a little higher at 25p.

Mr. Terry Davis

When the Minister asks his officials to produce those figures, will he also ask them to reconcile their figures with those contained in the 75th annual report of the Customs and Excise, which show that total net receipts for all hydrocarbon oil duties in 1974, at 1975 prices, were £1,549 million? In 1975, the figure was £1,227 million and in 1985 it will be £1,945 million. I do not expect the Minister to answer my point now, but perhaps he will ask his officials to explain those conflicting figures in the public document.

6.30 pm
Mr. Hayhoe

On consideration, the hon. Gentleman will realise that there is no discrepancy in what we are saying. He is giving total annual figures whereas I was giving a peak figure, which arose when VAT was increased to 25 per cent. at the end of 1974. For a short time, that created an extremely high figure for the total burden. I said that, in comparison, the peak figure attained under the Labour Government was marginally higher than the present figure.

The European comparison, which is also important, was mentioned by the hon. Member for Great Grimsby (Mr. Mitchell) and others. Britain is still fairly low in the European league table. If we consider the retail price of petrol sold at the pump, the price in Britain is below that of Belgium, Denmark, France, Ireland and Italy. If we consider tax as a percentage of the retail selling price, Britain is below the Netherlands, Italy, Ireland, France and Denmark, and just above Belgium.

I have little doubt that, by an ingenious use of the figures, those who would wish to make such a comparison will find that, in some aspects, Britain is higher in the table.

Mr. Campbell-Savours

What about the duty on derv?

Mr. Hayhoe

I am talking now about petrol. The figures for derv are different. One is often aware of the points that the hon. Gentleman will raise before he makes them, and I shall say something about derv in a moment.

Mr. Fisher

I am grateful to the Minister for mentioning tax as a percentage of retail price. Although I am sure that his European comparisons are correct, does he accept that a comparison of the percentage when his Government came to power in 1979 and now is not flattering to the Government? I estimate that the present percentage is about 52 or 53 per cent. of the retail price, whereas in 1979 it was about 39 per cent.

Mr. Hayhoe

It was not 39 per cent. but about 49 per cent. of the retail price in 1978–79. In 1979–80, it was 47 per cent., and then it increased, as the hon. Gentleman said, to the present figure of 53 per cent. However, if he puts down a question, I will gladly confirm those figures or make any necessary corrections. They are the figures that I have in front of me today.

The hon. Members for Workington (Mr. Campbell-Savours) and for Kingston upon Hull, West mentioned the derv-petrol duty differential. The duty differential in favour of derv has been widened marginally from 14p a gallon to 14.6p a gallon, including VAT, which leaves it unchanged in real terms. Therefore, it has not narrowed, as the hon. Member for Kingston upon Hull, West alleged. The differential takes account of the continued need to limit the impact of duty increases on business and distribution costs. However, derv must continue to make a considerable contribution, in the Chancellor's judgment, to the overall yield from motoring taxes. Erosion of the revenue must be contained, and industrial as well as private consumers must be encouraged to use oil efficiently.

To take the point that the hon. Member for Workington had in mind, it is true that the duty on derv in the United Kingdom is almost the highest in the Community. However, we must consider such matters in the round. Several EC countries with low derv duties have higher rates of VAT than does the United Kingdom, and they incorporate provisions in their VAT regimes which prevent VAT from being recoverable as input tax. The block on reclaiming VAT paid on derv applies in several European countries. That complicates the comparison, because, as the hon. Gentleman will know, in Britain it is possible for the VAT paid on derv or on petrol that is used for business to be reclaimed.

The total tax burden on derv is about 93.4p a gallon, but the duty only is 68.9p. The difference of about 24p a gallon is the VAT charge, which is reclaimable.

Mr. Campbell-Savours

Is it not fair and reasonable that, after those considerations have been taken into account, British manufacturing industry should not have to pay a higher net price for diesel than do our European Community partners? Is it not true that, after one has taken into account the complications to which the Minister referred, British firms still pay a higher price for diesel than do firms in other Community countries?

Mr. Hayhoe

I shall have to check that——

Mr. Campbell-Savours

The Minister should know.

Mr. Hayhoe

I do not have the details in front of me, and I wish, as always, to give precise figures to the hon. Gentleman. I can tell him that, in some European countries, the rates for vehicle excise duty—the disc to which the hon. Gentleman referred—on diesel-engined vehicles is higher than those for petrol-engined vehicles. The comparisons are complicated. If the hon. Gentleman tables a question, I should be happy to set this out in tabular form to try to get all the factors together.

Mr. Campbell-Savours

Is not the Minister misleading the Committee? As though to excuse the regime in the United Kingdom, he referred to one group of vehicles, but he did not say that those vehicles were motor cars. We are not discussing motor cars; we are discussing commercial vehicles, and in that sector his argument does not hold water.

Mr. Hayhoe

I am not trying to excuse the position in the United Kingdom. If I wanted to make party points, I would say that, in 1977, instead of there being a reverse differential on duty in favour of derv, there was a reverse differential of 5p a gallon, in the money terms of the day—it was a considerable difference—against derv. The hon. Member for Workington should look at all these aspects in the round. If he seeks to be fair—I know that he often does—he will see—[Interruption.] I hope that I do not do the hon. Gentleman a great disservice by saying that, even occasionally, he seeks to be fair. I shall withdraw that expression instantly if the hon. Gentleman is worried. I thought that he had been reselected.

The debate has been extremely useful, and I am grateful to the hon. Member for Hodge Hill for initiating it. This aspect is an important part of our taxation regime, and it was right to have a short debate on it. I commend clause 3 to hon. Members, and I hope that it will be carried by a substantial majority.

Mr. Terry Davis

I, too, welcome you to the Chair, Mr. Crouch.

As the Minister has said, we have had a short debate on this issue. Let us hope that all our debates will be as short. If other Treasury Ministers conduct themselves with as much good humour and equanimity as the Minister of State, I am sure that the whole debate will be brief.

I disagree fundamentally with the Minister of State. The hon. Gentleman said that the Chancellor was "required" to increase these taxes. The Chancellor is not required to increase them. He is not required to revalorise them. There is nothing inexorable about these increases. It is a political decision. It is a decision about priorities. We are not talking about the abolition of petrol tax, as the Minister seemed to imply, but we oppose this particular increase.

I agree that it is a considerable sum—£250 million for petrol, and £50 million for derv. Those significant sums should not be raised in this way. The Minister said that my hon. Friend the Member for Workington (Mr. Campbell-Savours) had a habit of putting points that could always be anticipated. I must admit that I expected the Minister to ask me how we would pay for the abolition of this increase this year, and I will now tell him. We would not ease capital gains tax for those who make a profit of £6,000 or more a year at a cost of £150 million. We would not abolish development land tax for those who make a profit of £75,000 a year from property development at a cost of £50 million. Those sums alone amount to the sum that the Chancellor will obtain from increasing the price of petrol without any regard for those on low wages in rural, urban and suburban areas who have no alternative but to use private cars. This is a political decision. It is a choice of priorities by the Chancellor to increase the tax on petrol, reduce the tax take from capital gains and abolish development land tax.

The Minister made comparisons with Europe. When Conservative Treasury Ministers make comparisions with Europe instead of with their predecessors—the Labour Government—I know that we have won the argument. Therefore, I and my hon. Friends will vote against the clause.

Question put, That the clause stand part of the Bill:

The Committee divided: Ayes 220, Noes 119.

Division No. 198] [6.43 pm
Alexander, Richard Hawkins, Sir Paul (SW N'folk)
Alison, Rt Hon Michael Hayes, J.
Ancram, Michael Hayhoe, Barney
Arnold, Tom Hayward, Robert
Ashby, David Heddle, John
Aspinwall, Jack Henderson, Barry
Atkins, Rt Hon Sir H. Hickmet, Richard
Atkins, Robert (South Ribble) Higgins, Rt Hon Terence L.
Baker, Nicholas (N Dorset) Hind, Kenneth
Banks, Robert (Harrogate) Hirst, Michael
Batiste, Spencer Holt, Richard
Beaumont-Dark, Anthony Howarth, Alan (Stratf'd-on-A)
Benyon, William Howarth, Gerald (Cannock)
Best, Keith Howell, Ralph (N Norfolk)
Blackburn, John Hunt, David (Wirral)
Body, Richard Irving, Charles
Boscawen, Hon Robert Jackson, Robert
Bottomley, Peter Jessel, Toby
Bottomley, Mrs Virginia Johnson Smith, Sir Geoffrey
Bowden, A. (Brighton K'to'n) Jones, Gwilym (Cardiff N)
Bowden, Gerald (Dulwich) Jones, Robert (W Herts)
Braine, Rt Hon Sir Bernard King, Roger (B'ham N'field)
Brandon-Bravo, Martin Knight, Mrs Jill (Edgbaston)
Bright, Graham Lamont, Norman
Brinton, Tim Lang, Ian
Brown, M. (Brigg & Cl'thpes) Lawrence, Ivan
Browne, John Lee, John (Pendle)
Bruinvels, Peter Leigh, Edward (Gainsbor'gh)
Bryan, Sir Paul Lennox-Boyd, Hon Mark
Buck, Sir Antony Lester, Jim
Budgen, Nick Lewis, Sir Kenneth (Stamf'd)
Bulmer, Esmond Lilley, Peter
Burt, Alistair Lloyd, Ian (Havant)
Carlisle, John (N Luton) Lloyd, Peter, (Fareham)
Carlisle, Kenneth (Lincoln) Lord, Michael
Carlisle, Rt Hon M. (W'ton S) Luce, Richard
Carttiss, Michael Lyell, Nicholas
Cash, William McCurley, Mrs Anna
Chalker, Mrs Lynda Macfarlane, Neil
Chope, Christopher Maclean, David John
Clark, Dr Michael (Rochford) McNair-Wilson, P. (New F'st)
Clarke, Rt Hon K. (Rushcliffe) Major, John
Cockeram, Eric Malins, Humfrey
Coombs, Simon Malone, Gerald
Cope, John Marlow, Antony
Cormack, Patrick Mates, Michael
Couchman, James Mather, Carol
Critchley, Julian Mawhinney, Dr Brian
Currie, Mrs Edwina May hew, Sir Patrick
Dickens, Geoffrey Merchant, Piers
Dorrell, Stephen Miller, Hal (B'grove)
Douglas-Hamilton, Lord J. Mills, lain (Meriden)
Dover, Den Mills, Sir Peter (West Devon)
Dunn, Robert Mitchell, David (NW Hants)
Dykes, Hugh Montgomery, Sir Fergus
Evennett, David Moore, John
Eyre, Sir Reginald Morris, M. (N'hampton, S)
Fallon, Michael Morrison, Hon C. (Devizes)
Favell, Anthony Moynihan, Hon C.
Fletcher, Alexander Nelson, Anthony
Forman, Nigel Newton, Tony
Forth, Eric Nicholls, Patrick
Fowler, Rt Hon Norman Norris, Steven
Fox, Marcus Oppenheim, Phillip
Gale, Roger Oppenheim, Rt Hon Mrs S.
Galley, Roy Osborn, Sir John
Garel-Jones, Tristan Ottaway, Richard
Goodhart, Sir Philip Page, Sir John (Harrow W)
Gower, Sir Raymond Parkinson, Rt Hon Cecil
Greenway, Harry Parris, Matthew
Griffiths, E. (B'y St Edm'ds) Percival, Rt Hon Sir Ian
Grylls, Michael Pollock, Alexander
Hamilton, Hon A. (Epsom) Portillo, Michael
Hannam, John Powell, William (Corby)
Hargreaves, Kenneth Powley, John
Harris, David Prentice, Rt Hon Reg
Harvey, Robert Price, Sir David
Haselhurst, Alan Pym, Rt Hon Francis
Raffan, Keith Thomas, Rt Hon Peter
Raison, Rt Hon Timothy Thompson, Donald (Calder V)
Rees, Rt Hon Peter (Dover) Thompson, Patrick (N'ich N)
Rhodes James, Robert Thorne, Neil (llford S)
Ridsdale, Sir Julian Thornton, Malcolm
Rippon, Rt Hon Geoffrey Thurnham, Peter
Roberts, Wyn (Conwy) Townend, John (Bridlington)
Robinson, Mark (N'port W) Tracey, Richard
Roe, Mrs Marion Twinn, Dr Ian
Rowe, Andrew van Straubenzee, Sir W.
Ryder, Richard Viggers, Peter
Sackville, Hon Thomas Waddington, David
Sayeed, Jonathan Wakeham, Rt Hon John
Shaw, Giles (Pudsey) Waller, Gary
Shaw, Sir Michael (Scarb') Ward, John
Shelton, William (Streatham) Wardle, C. (Bexhill)
Shepherd, Colin (Hereford) Watson, John
Shepherd, Richard (Aldridge) Watts, John
Silvester, Fred Wells, Bowen (Hertford)
Sims, Roger Wells, Sir John (Maidstone)
Skeet, T. H. H. Wheeler, John
Smith, Tim (Beaconsfield) Whitfield, John
Soames, Hon Nicholas Whitney, Raymond
Speller, Tony Wiggin, Jerry
Spencer, Derek Winterton, Mrs Ann
Spicer, Michael (S Worcs) Winterton, Nicholas
Stanbrook, Ivor Wolfson, Mark
Steen, Anthony Wood, Timothy
Stern, Michael Yeo, Tim
Stevens, Lewis (Nuneaton) Young, Sir George (Acton)
Stewart, Andrew (Sherwood)
Stradling Thomas, J. Tellers for the Ayes
Taylor, John (Solihull) Mr. Tony Durant and
Terlezki, Stefan Mr. Michael Neubert.

Question accordingly agreed to.

Clause 3 ordered to stand part of the Bill.

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