RATES OF DUTY (Hansard, 23 January 1995)

The Chairman
With this it will be convenient to take Government new clause 3—Hydrocarbon oil rates: further provisions.

§ Mr. Heathcoat-Amory
Clause 5 increases the excise duty on hydrocarbon oils by between 6.4 and 9.9 per cent. The differential between leaded and unleaded petrol has been frozen at 5.7p per litre, including VAT. The overall increase in taxation at the pump is between 2.5p and 3.2p per litre on road fuels. The duty increases came into effect, as usual, on Budget day. Duty on aviation gasoline increases automatically by 6.4 per cent., because it is set at half the leaded petrol rate.
Gas oil used for industrial heating and power, and heavy fuel oil for industrial heating and furnaces, both increase by 0.5p per litre. The duty on road fuel gas is unchanged, but it is now expressed in pence per kilogram rather than pence per litre. Kerosene, which is used as aviation turbine fuel and for domestic heating purposes, is not charged with duty.
My right hon. and learned Friend the Chancellor also reaffirmed his support for the commitment to increase road fuel duties by an average of at least 5 per cent. in real terms per year. This sends a clear signal to manufacturers to build more fuel-efficient vehicles and a clear signal to customers to buy them. The announcement of our intentions for future increases in fuel duties will give manufacturers and customers a longer-term context in which to plan their investment decisions.
The 5 per cent. real increases are also an important part of our strategy to reduce carbon dioxide emissions. The fuel duties policy should reduce carbon dioxide emissions by around 2.5 million tonnes of carbon by 2000. This, together with other measures already announced, should enable us to meet our targets of reductions arising from the Rio agreement.
New clause 3 raises the excise duty on road fuels by between 2.5 per cent. and 2.9 per cent. This arises from the statement by my right hon. and learned Friend the Chancellor on 8 December and was approved by the House on 13 December. The differential between leaded and unleaded petrol has again been frozen at 5.7p a litre. The increase in taxation at the pump, including VAT, will be 1p per litre. This increase came into effect on I January 1995.

§ Ms Primarolo
As a result of new clause 3—the increases in excise duty on hydrocarbons—the Chancellor has imposed an extra tax of £51 a year on a typical car owner. This is the latest rise and it means that the duty on a litre of leaded petrol has gone up by 9.8p in the three Budgets since March 1993. The increases, which represent the Tories' one-club response to the Rio environmental targets to which they signed up, are a 99 further blow to the many people living in rural areas—[HON. MEMBERS: "Hear, hear."] They all seem to be sitting in the Chamber.

§ Mr. John Home Robertson (East Lothian)
And why not?

§ Ms Primarolo
Indeed, why not. In the absence of a decent integrated public transport system, those living in rural areas are forced to rely on cars as their only means of transport. The increase in petrol duties is another example of the Government's hidden tax increases. In 1979, about 45 per cent. of the retail price of a gallon of petrol went in tax, excise and VAT. From January this year, 75 per cent. of the retail price will go in taxes.
The Government have claimed that this use of only one mechanism to reach the Rio targets is acceptable. The Chancellor, however, speaking in the House on 8 December 1994, said: I also propose that the duties on road fuels will rise by a further 1p per litre. I have kept these increases to a minimum to limit the burden on businesses and the rural motorist … The increases will also play a part in our strategy for curbing emissions of carbon dioxide."—[Official Report, 8 December 1994; Vol. 251, c. 475.] Transport-related air pollution is known to affect people's health adversely. The object must be to change polluting behaviour—to reduce the number of journeys made by car. Emissions of carbon dioxide from motor vehicles increased by 50 per cent. during the 1980s, but the use of above-inflation fuel tax increases may help only as part of a package. In itself, it is insufficient and will not satisfy the environmental targets.
People will not be persuaded to use cars less by this mechanism, because of the absence of public transport, unless there is an efficient, reliable and affordable alternative. Everything that the Government have done in public transport has undermined that arm of public policy; that continues to be the case. Funding for local government packages for transport in 1995–96 has been cut by 8 per cent. in real terms. The cut for London is 4 per cent. in real terms and will be 37 per cent. in real terms by 1997–98. Those are not the actions of a Government who claim to pursue an environmentally friendly policy on transport. The increases must be seen not as a contribution to a strategy on the environment but as another piece of the jigsaw in which the Government seek indirect taxes to replace direct taxes. They seek to take from people through indirect taxes so that they can save up to give tax cuts, perhaps, in future.
It is, of course, important to curb carbon dioxide emissions, but that will not be achieved simply by using this type of tax increase. People living in rural areas will be badly affected. They will find it difficult to understand why they must pay for the Government's taxes while receiving little in return in public transport. Pitching the tax and the tax rise as an environmental measure is cynical and no more convincing than the case that the Government tried to make for imposing VAT on fuel.
This is what needs to be done. We need an urgent shift of investment away from road building and towards public transport. We need to encourage bus priority measures, and we need a network of safe cycle routes and better provision for pedestrians. We need to promote clean air technology, setting minimum standards for fuel efficiency and exhaust emissions. We need to ensure that 100 new developments are sited to minimise the need for the individual to rely on private motoring and an individual car. That, not the spurious case that the Government try to make tonight, which involves taking more taxes from the electorate to save their own skin now, while selling the environment of our children and the future, is the formula for dealing with the environment.

§ Mr. Salmond
I endorse everything that the Labour spokesperson, the hon. Member for Bristol, South (Ms Primarolo), said. These are vital matters which will affect rural communities, so it is all the more surprising that the Labour Whips have sent the troops home and they will not be able to vote against the Government if Divisions are called later this evening.
I turn to proposed new clause 3. When the Government were forced by the joint action of a variety of parties in the House to abandon the second tranche of the value added tax on fuel, they replaced one anti-Scottish measure with two anti-Scottish measures: the mini-Budget tax on whisky, which we have just debated; and the additional taxation imposed on road fuel duty, which will fall heaviest on rural communities, many of which are located in Scotland.
In the past couple of years, Scotland has been sheltered from the Government's yearly real terms 5 per cent. increase in those duties because of the prevailing low oil prices. That has meant that the pump price of petrol and DERV has not shot up astronomically in the past two years. However, oil is a cyclical market. Western economies are experiencing a general recovery and many economists are forecasting a sharp upturn in the price of oil—certainly a stabilisation and an increase in the current levels. If a real increase of 5 per cent., which the Chancellor has forecast for the indefinite future, and the impost in the mini-bar Budget of additional VAT on fuel is added to the expected upturn in the oil price, the outlook for many rural communities is extremely serious.

§ Mr. Dafydd Wigley (Caernarfon)
Does the hon. Gentleman accept that in many rural communities—certainly in Wales, and, I dare say, in Scotland and in parts of England—the price of petrol is already substantially higher than in urban areas? We are seeing an additional imposition on an already burdensome level of cost, which will hit poorer people very hard indeed.

§ Mr. Salmond
The hon. Gentleman is right; he anticipates the point that I was about to make. There will be an increase not just in the road fuel duty but in pump prices generally in rural areas. The increase in VAT on fuel will mean that people in rural communities will pay more tax because the fuel prices are higher. They will lose at every turn.
The point has been made that in many rural communities the car is not a luxury, but a necessity; it is often the only form of transport available. If the Government continue to pursue them, the measures will impact on transport costs in rural communities and they will hit rural industries by pricing them out of the market. It is academic to talk about competing in a single market of almost 400 million people if rural communities in this country are effectively priced out of accessing that major market because of the huge increases in fuel duties imposed by the Government.
101 The hon. Lady made several suggestions for formulating a more sophisticated, sensitive and environmentally friendly policy, and I shall make a few more. Given the importance of industry to rural economies, the Government should think seriously about increasing the differential between DERV and petrol.
If they had any imagination, the Government would think carefully about congestion pricing. Singapore intends to experiment in the near future with automatic pricing increases for people who take cars into areas of traffic congestion. One of the great ironies of imposing penalties on rural communities is that people caught in city traffic jams, with cars belching exhaust fumes, impact more on the environment than those people travelling by car in non-congested areas.
It may be argued that the road tax should be increased for second cars. By and large, if duties must be paid, families with a second car are in a better position to pay them than those families who rely on a single car as their only available form of transport. It can certainly be argued that the adequate provision of public transport—which has been decimated in many rural areas—shouldbe argued that the adequate provision of public transport—which has been decimated in many rural areas—should be a prerequisite of any move sharply to increase petrol and DERV duties.
As evidence of the pent-up demand for public transport, I cite the experiment that has been run in the Grampian region—it was begun by the SNP Labour-controlled council two years ago and has been continued by the SNP Liberal administration—offering a 10p bus fare. An old-age pensioner can travel in the north-east of Scotland from Dundee to Inverness for l0p. That experiment has been extraordinarily successful, and buses that were once empty are now full of people taking the opportunity to use rural public transport. The Government's measure will price people out of private transport in rural areas.
At the beginning of my brief remarks, I said that the Government had effectively replaced one anti-Scottish tax with two anti-Scottish taxes. Given that my colleagues and I have already voted against the general taxation measure in the Budget debate proper, given the opportunity this evening we will certainly divide against the Government's proposed new clause 3. I hope that on this occasion the other Opposition parties will join us in the Lobby.

§ Mr. Malcolm Chisholm (Edinburgh, Leith)
My hon. Friend the Member for Bristol, South (Ms Primarolo) rightly said that the way to deal with CO₂ emissions is to develop public transport, but new clause 3 will further punish public transport because of the increase that it will make in diesel fuel. That was not highlighted in previous debates. That percentage increase is far higher than the 5 per cent. that the Chancellor highlighted as official policy, because of the freezing of fuel rebate in last year's Budget.
Until November 1993, local bus companies paid about 10p per litre of fuel. When the rebate was frozen last year, that amount was added to their costs. There was an increase of nearly 3p after last year's Budget, and after the two Budgets this fiscal year, users will have to pay an additional 3.62p. A local bus company will, in effect, face a 60 per cent. increase in fuel costs as a result of new clause 3. We must highlight the effect that that will have on public transport costs.
102 My local bus company, Lothian Regional Transport, said that the increases would add £600,000 to its costs in the forthcoming year, which is 1 per cent. on its total overheads. There were similar increases last year, although they were cushioned to some extent because oil prices were static and declined for part of the year. I am told that the reverse is likely in the forthcoming year because of the rise in the value of the dollar.
Bus companies will begin to feel the effects of the increased tax and the freezing of the rebate in the course of the next year. It is an anti-environment tax in respect of bus companies. The consequence will be higher fares and fewer people using public transport. That is usually the case when fares increase.
The Government presented last year's rebate freeze as a green measure, but that is typical of the hypocrisy that we saw when they introduced VAT on domestic fuel. The Government argued that buses would be forced to use more fuel-efficient engines if diesel became more expensive. The reality is that cutting emissions often means less fuel efficiency and more diesel being used.

§ Mr. Salmond
Is not one effect of Government policies, which is evident to any driver, that they result in a large number of older buses in use because of lack of investment?

§ Mr. Chisholm
I was about to make that point. Higher fuel costs mean less money available for investment. Since deregulation, there have been many more older buses on the road. We are seeing another example of the Government not thinking seriously about the environment. It is time Government Departments started paying attention to the recommendations of the Royal Commission on environmental pollution. If they did, they would start fully rebating amounts spent by bus companies on fuel. Because the Government are not doing that, I totally oppose the increase in duty on bus fuel.

§ Mr. Home Robertson
My hon. Friend said that the Government are imposing an anti-environment tax. I endorse also the point made by my hon. Friend the Member for Bristol, South (Ms Primarolo) that it is a ferociously anti-rural tax. The Government and the Paymaster General, who represents a rural constituency, ought to explain the reasons for their action.
My hon. Friend the Member for Bristol, South said that this measure will involve an extra tax take of £51 from every car owner in Britain. I suspect that my rural constituents will pay much more because they must travel greater distances and use more fuel. All the goods and services that they purchase are also subject to the tax. The tax certainly discriminates heavily against people living in rural areas.
Sometimes, people have no choice in this matter. Last week, I received a letter from a constituent who, until recently, used the railway service to commute to work in Edinburgh. Because of the lack of investment in that service, however, it has become so unreliable that she now finds it necessary to travel by road. Other Government policies are pushing more and more people on to the roads, and now the Government are taxing them for something that they did not want to do in the first place.
As my hon. Friend the Member for Bristol, South said, the measure has been dressed up as something to do with the Rio environmental objectives. Clearly, that is bogus. If there is one group of motorists who do not significantly 103 contribute to carbon dioxide pollution, it is rural motorists. The pollution of the environment caused by people driving around the highlands of Scotland, rural Wales or the south-west of England is hardly an important factor in atmospheric pollution. Far more important is the pollution generated by—largely stationary—vehicles in traffic jams in urban Britain. If, as the hon. Member for Banff and Buchan (Mr. Salmond) and other hon. Members have suggested, the Government dealt with that problem, I am sure that the House of Commons would support them.
I hope that the Minister's constituents in Wells are aware of what he is doing. This is a ferociously anti-rural tax, and the Government should not be allowed to get away with it.

§ Mr. Heathcoat-Amory
I have listened carefully to this debate and to the opposition to the proposal from Opposition parties. Those same Opposition Members have in the past supported the idea of increasing taxes on environmentally unfriendly products—there are plenty of quotes on file to support that contention. Once a lobby group is assembled to complain about a particular increase in duty on environmentally unfriendly products, however, they cave in and vote against it. In fact, I am not sure whether they will tonight. We shall see who—and how many of them—votes against the measure.
The fact is that 20 per cent. of carbon emissions in the United Kingdom come from road transport, and a large increase in emissions is forecast by the end of the century; so transport must contribute to any strategy to reduce carbon dioxide emissions. Under the Rio convention, we agreed to reduce our emissions by the year 2000. The hon. Member for Bristol, South (Ms Primarolo) is wrong to say that this is our only policy to achieve that end. The increase in road fuel duty contributes to only a quarter of the carbon dioxide reductions that we are planning. There are plenty of other measures in place which will deliver the bulk of our commitment.
Of course I recognise the position of those living in rural areas. As the hon. Member for East Lothian (Mr. Home Robertson) reminded the Committee, I represent a rural constituency and I am alert to its interests. I know that a car is often a necessity, but all motorists must think about the environmental consequences of what they do. We have ensured in other ways that the cost of motoring is kept down whenever possible—

§ Mr. Salmond
As the Minister has recognised the interests of his own constituents, may I ask him whether the Government have made any study of the differential effect of their policy of blanket increases on rural motorists and rural incomes? Have they made any study of the impact on rural industries of the road—pardon the pun—down which they are travelling? Were any studies done before the policy was put in place? Do the Government know the implications for rural communities of the policies that they are imposing on them?

§ Mr. Heathcoat-Amory
Yes, a well-known study of the pricing of petrol and of petrol products throughout the United Kingdom has been done. The hon. Gentleman will concede that petrol and fuel costs are but one component in the budgets of those who live in rural areas. Plenty of other things are cheaper in rural areas—certainly in 104 Scotland, where housing costs are generally lower than they are in my constituency. I am not asking for the Government to intervene to try to correct that imbalance; it would be impossible for the Government to lay down by some prescriptive formula what petrol and fuel companies should charge in various parts of the country. I am rather surprised that the hon. Gentleman advances that proposition. Why should such an approach be limited to fuel costs? Why should it not apply also to every item on which our constituents spend their money? I accept that some things are more expensive in rural areas. Some things are more expensive in urban areas. That is the interplay of a market and the inheritance of the past.

§ Dr. Godman
Will the Minister give way?

§ Mr. Salmond
Will the Minister give way?

§ Mr. Heathcoat-Amory
I shall give way to the hon. Member for Greenock and Port Glasgow (Dr. Godman). The hon. Member for Banff and Buchan (Mr. Salmond) has already spoken.

§ Dr. Godman
Will the Minister confirm that such increases in the price of fuel oil have nothing to do with the oil used by fishing vessels to power those vessels?

§ Mr. Heathcoat-Amory
If I am wrong, I shall write to the hon. Gentleman, but my understanding is not. If the hon. Gentleman will forgive me, I shall not give a definitive answer from the Dispatch Box. The structure of fuel duties is complicated. In my opening remarks, I referred to vehicle fuels and to heavier fuels, some of which are taxed more lightly and some of which are not taxed at all.
I shall pursue the argument about the overall cost of motoring. I remind the Committee that the abolition of car tax by the Government has made cars somewhat cheaper. That, in turn, has filtered through to the second-hand market. Although we see increases in the price of petrol, petrol is still cheaper in real terms than it was a decade ago. It is certainly cheaper here than in most other European Community countries.
We have resisted calls from some quarters for the doubling of duties on transport fuels. Such calls occasionally crop up from various environmental groups and others, which seek the abolition of vehicle excise duty and a transfer to fuel tax. That is attractive to some. It would equate costs more closely with usage. Precisely for the reason that it would disproportionately damage and hit the rural motorist, we have resisted that approach. For all the reasons to which I have referred, I must ask the Committee to accept the clause in its original form.

The Chairman
For the convenience of the Committee, I shall put the Question on the new clause after the Question on clause stand part.
Question put and agreed to.
Clause 5 ordered to stand part of the Bill.