HL Deb 24 March 1981 vol 418 cc1141-53

8.34 p.m.

Lord Underhill rose to ask Her Majesty's Government what consideration has been given to the effect on industry and also on public and private transport in rural areas of the increase in petrol tax introduced in the Budget.

The noble Lord said: My Lords, the Question which I beg leave to put is not intended to cover all the various measures of the Budget nor the full consequences of the Budget. The Question is concerned with the effects of the increased tax on petrol and diesel fuel. Mr. Michael Foot, the Leader of the Opposition, has observed that the 20p increase in petrol and fuel tax will inflict serious injury on the economy and make it infinitely more difficult to embark upon any process of recovery.

On the morning after the Budget the Guardian stated: Britain's road users, from the private motorist to the operators of large commercial fleets, are reeling from the Chancellor's Budget proposals". A spokesman for the Automobile Association has commented: The Budget is a kick in the teeth for motorists who have been lumped together with the luxuries of life to place them in the forefront of the Chancellor's tax increases". The point of the AA is of course that this affects not only the individual but the whole of industry, and they say it has been lumped together with taxation on the luxuries of life.

There can be few who do not agree that this tax increase will have a disastrous effect on the rural areas. Inevitably it must have effects on jobs, services, and general living standards. Many noble Lords, with their close knowledge of rural areas, will understand only too well that this is what will happen. Those in rural areas are more dependent on their cars than are other people. In so many areas bus transport is either inadequate or non-existent, and in only a small number of areas are there any train services.

Many people living in the villages have to travel some distance to work, and they are compelled to rely on car transport. Shops are limited. In fact, many village shops are closing or have closed, and this process continues. For major shopping and access to many other services there has to be reliance upon the car. Often to visit a hospital from the village to the town requires reliance upon either one's own car or somebody else's car. One survey indicates that 81 per cent. of journeys in rural areas are by car compared with 66 per cent. in the towns. In some of the remote areas the percentage is even higher. For the rural car owner it is estimated that there will be at least £1 extra to the weekly cost of running a car, and that is an estimate on a very modest annual mileage.

This is not all. Smaller garages in many villages have of necessity to charge a higher pump price. Whereas in most towns petrol can be obtained at about £1.50—I can get it for between £1.48 and £1.49—in rural areas it is around £1.60, and in the more isolated places even higher. It has been made clear too that the higher tax will also add to delivery costs, and these will be reflected in the rural areas in higher costs, and higher prices for most items.

Although there are many people who are better off living in villages outside towns, it has to be kept in mind that generally rural incomes are some 10 per cent. below the national average. Fortunately, this increased tax will not directly affect bus services as fuel tax has been rebated for bus operators I believe since 1974. But there is nothing within the Budget to help operators to start or extend bus services. Therefore, there has to be this reliance on the private car. In passing, it is feared that the problems of local council financing, and the reduction in Government transport supplementary grant to county councils, may lead to a reduction in grants to bus operators in some areas. This obviously will add to the problems of rural transport.

There will be few people, if any, who will be exempt from the effects of this increased petrol and fuel tax. It will be an added burden of cost to the farmer. The fishing industry, which is going through very hard times, will have this added burden of costs which it will have to face. Local councils, who are being forced to cut services—and almost every day we read of the increased rates which councils, no matter who controls them, are having to request from their ratepayers—are now to face a substantial increase in petrol and fuel costs, which for many local councils will be very heavy indeed.

I have referred to the position of small rural garages. The Motor Agents' Association have pointed out that a retail dealer taking a 6,000 gallon petrol delivery will now face an instant bill for a further £1,200. The association has warned that the prospects for independent outlets are very bleak indeed. Large retail shopping concerns have stressed that the costs of distribution caused by the added petrol tax will have to be passed on to consumers. That is exemplified by this statement by the Co-operative Union, the body which speaks for the network of Co-operative shops: The substantial rise in petrol and derv duty will make for vast increases in costs to the Co-op Movement and our competitors and can only be a calamity for working people". I have dealt so far in the main with the effects of the increased petrol tax on the individual. What will be the effect on industry? On the morning after the Budget the Financial Times commented: Industrialists were shocked last night by the Budget's lack of help for most of industry, despite the cut in minimum lending rate".

Referring in particular to the increased petrol and fuel tax, the paper observed: This seems an odd thing to do if the objective of the Budget is to help industry". Various transport organisations have expressed their deep concern. The Freight Transport Association estimates that the tax will add 4 per cent to transport costs. That, they say, will be passed to their customers who in turn will pass on the increase to consumers. The British Road Federation commented that the tax on petrol is now 62.3p per gallon, with another 20p for VAT, all this at a time when industry is being exhorted to invest and workers to produce more goods". The Road Haulage Assocation stated that because hauliers were already in serious difficulties there would be no alternative but to pass on the 4 per cent. cost increase, which must push up the price of goods carried. According to the association, haulage operating costs rose by 17.3 per cent. last year, meaning that hauliers now need 23 per cent. more revenue to cover costs compared with the previous year. I referred to the morning after statement by the Financial Times. After a week's reflection, that paper stated on 19th March: British industry could not be hit much harder by the Chancellor's measures on fuel prices than has been realised". The article went on to say that the 20p additional tax on derv was likely to have a more severe impact on United Kingdom industry than even the petrol increase because the pump price of derv is now higher than in most Continental countries". I understand that figures issued by the Department of Energy give the pump price of derv in the United Kingdom as 161p per gallon. The next highest of seven West European countries are Germany, 120p, or 41p lower; France, 116p; and Belgium, 113p. I will not quote the others, which are even lower than those. Even before the Budget increase, the tax on derv plus VAT was higher in the United Kingdom than in most Continental countries. Now our industrial concerns will be up against the even lower transport costs of those competitors. In addition to the increase in transport costs, those industrial concerns which use oil for power and heating will be faced with similar increased costs. All that is over and above the costs of other energy supplies which, as has been stressed time and again, are much higher than for our Continental competitors.

I appreciate that the Government have introduced some allowances for large users of energy, but the general view is that they are inadequate and that crippling energy costs are facing our industrialists. That view was expressed, for example, in recent days by the Chemical Industries Association, which is deeply concerned about the tax on heavy fuel and has stressed the problem it will be for its members to meet those costs and compete against their competitors in the export market.

To sum up, while I am not suggesting that what I have spoken of is the main thing wrong with the Budget, the increased tax on petrol and fuel can only make life much harder for those living in rural areas. It must be inflationary in causing prices to rise in consequence of the increased transport costs. It will also be a further blow to industry by increasing its costs for transport and power. I therefore believe I am justified in asking the question: Has all this been taken into consideration by the Government?

8.44 p.m.

Lord Mackie of Benshie

My Lords, the noble Lord, Lord Underhill, has asked a Question which many people, including a large number of lifelong Tories, have been asking. I think it extraordinary that the Government do not appear to understand what goes on in the country, and I shall briefly underline what the noble Lord, Lord Underhill, said. The countryside today—this applies particularly the further north one goes, and especially to the countryside from where I come—is wholly dependent on the motor car. Every man on my farm has a car. Although it costs a lot to run their cars, they must do so because there is very little public transport, making the car essential. Indeed, the whole life of the countryside revolves around the motor car. They cannot go to the village shop any more and buy goods at a reasonable price; they must go to the supermarkets, which are situated some distance away, before they can get food and other goods at the same price as their industrial counterparts.

Every aspect of life in the country, particularly in the Highlands, is dependent on the motor car, and when it comes to derv and the increase in the price of fuel for transport, I wonder if the Government really appreciate the state agriculture is in. I know that the big grain growers have had a fair year this year. But if one takes a look at the income of Scottish agriculture, which I know most about, one finds the figure which I shall use in tomorrow's debate; namely, that the overdrafts of the farmers have gone up so much that they now pay the banks three times the amount of money they receive in net income. That is the state of agriculture all over Scotland, and 20p on the price of their transport fuel is another of the straws which will do immense harm to the industry.

I do not know what the exact figure is for inflation on the tax, but I imagine it is about 7p. I think people would have said, "We shall have to play our part and accept the fact that the tax on fuel might have to go up with inflation", but a rise of 20p is far and away beyond that sort of figure. If one looks at industry overall in Scotland—and I am speaking of Scotland because I know the rural areas there—one finds that a great many competent firms are in a very poor state indeed, and to them this appears to be just another tax—another burden and another straw on the camel's back—and I cannot understand what the Government are playing at. They are supposed to know the rural areas. Indeed, most of their Members are from the rural areas, and they must be aware of what is going on in those parts; witness the revolt against the tax.

It is all very well to have a single main plank of policy, which I understand to be the need to keep down inflation; but at the same time one must look at what is happening to industry, both rural and urban. Nobody who reads the financial reports of the companies in the papers can doubt that we are in an extraordinary position. I shall be interested to hear the Minister's reply, because he must tell us that the Government intend to use some skill and in some way help vital industry and agriculture in this country. It appears that until now they have been taking the money away from the industrialists, the people who work, and giving it to the bankers. Now they are going to take it away from the bankers in one form or another, and there will be much waste somewhere in between.

I shall not continue, because it seems to me that the case is self-evident, and in any case it has been extraordinarily well made. I shall be most interested to learn how an intelligent Minister, such as we have here in the noble Lord, can justify this extraordinary increase—out of all proportion to inflation—imposed on fuel that is absolutely vital for the regeneration of industry.

8.50 p.m.

Lord de Clifford

My Lords, I rise to speak because I live in a deeply rural area, which for some years now has found life becoming increasingly difficult. When we consider the cost of petrol we have to go back a few years to when the price was suddenly raised by OPEC. That decision caused considerable trouble in the rural areas, particularly in areas such as that in which I live. People in the rural areas, in particular the smallholders, lost all their deliveries. We used to have our milk delivered, but we lost that delivery. We used to have food delivered for our birds and animals, but we lost that delivery, too; and we lost much more besides. So we had to do it ourselves, and that meant spending a considerable amount of money.

After that there were price rises—natural, I suppose, during times of inflation—and then all of a sudden another 20p a gallon has been added to the price of our petrol. This is a most emotive subject. The people in the rural districts want to know why they are being picked on. Car tax has been increased; the cost of insurance has gone up. Everything has gone up. Then on top of that 20p a gallon is added to the price of petrol.

It is easy to sit in this Chamber and feel that perhaps there is some very good financial reason why the rural areas should be picked on to be hammered. But consider the situation when one has to go out to get food for one's animals. In the past fortnight or so one has had to go through perhaps four floods, wondering whether one will be able to get there, and afterwards get back. One is not quite sure whether one's place will be there when one returns. That kind of journey has to be undertaken in order to keep one's stock alive. In such circumstances people reach a state where, in a rather vulgar tone, they say, "Oh, let's give it up". But the people in the rural areas are rather tough; they will not give up. However, these increases will more and more force people out of rural areas.

It is nice to think that one can go out and catch a bus in order to go somewhere. In my area we are seven miles from the nearest big town. One has to travel three and a half miles to get a bus. How can anyone expect elderly people to walk three and a half miles for a bus? They have to depend on their cars. Now the price of petrol has gone up and so there is an extra strain on their pockets merely in getting to a bus. One wonders what will happen to people when the prices in the shops go up yet again—and go up they must.

Take as an example the farmer, who has a delivery of fertiliser. The raw material for the fertiliser comes off a ship and goes into the manufacturer's premises, where the first increase in cost is imposed. After being manufactured the fertiliser goes to a distributor and another increase is involved. It then has to be delivered to the farmer—another increase. The farmer produces the stock and takes it to market—and that involves yet another increase in cost.

It seems to me that the rural areas are getting the hammer in every way. The noble Lord who is to reply to the debate can produce all kinds of statistics about the need to control inflation, but he must also produce a story that the rural areas are prepared to accept; otherwise the Government will be in dead trouble in these areas.

8.56 p.m.

Lord Davies of Leek

My Lords, following the constructive speech that we have just heard I do not want to try to ram my points home, after we have had a busy day. The points are self-evident, but I want to look at this matter from another angle. Recently financial publications of various kinds have used the colloquial term that The Government have knocked the stuffing out of British industry". I would add that the same has happened to agriculture and to the countryside in general. Throughout the ages the great Conservative Party has tried to preserve the special philosophical outlook of the countryside of Britain. The Conservative Party has been the countryside's protector. But has the Conservative Party now abandoned that position? I am quite sure that that question will be asked of the traditional Conservative in the rural areas at the next General Election, whatever may happen to any other party.

I used to talk to farmers at cattle markets during election time. A farmer would say to me, "I can't possibly vote for you. My father would roll in his grave". Occasionally, a farmer might say, "I won't vote against you, but I can't possibly vote for you. Our family has been Conservative all my life". A person who does not understand the countryside might scoff at that; but in the past the Conservative Party had a great amount of coinage in rural England. Now much of that has been spent.

The English countryside derives a peculiar characteristic from the way in which arable and pastoral life have been combined: cattle, crops and cottages knit together throughout the ages in a symphony of production, orchestrated with the rivers, the fishing, the village school, the village church. The village school has gone. It was the focal point of the social life of the village. Now in thousands of villages it has gone.

I want to look at this question from the point of view of the farmers, too. I shall put the argument, whether it be right or wrong. Farmers are asking for a 15.3 per cent. rise in EEC farm prices. Rural communities are complaining. Even before the Budget's swingeing 20p increase on petrol, in the United Kingdom costs had risen faster than in other EEC countries, due to inflation, increasing more quickly month by month. The Chancellor of the Exchequer, Sir Geoffrey Howe, after a meeting of EEC Finance Ministers in Brussels, emphasised that an increase in farm prices had to be kept as low as possible. How can that be expected when we have this swingeing tax on petrol, oils, and other fuels? Everything in country life is overburdened with transport costs. The railways are derelict, railways that may have been kept alive despite the "Beechingitis" which crippled the country many years ago.

I think there is an important point for both sides of the House and whatever party may reign in the future. Budgets will have to be brought to the country in a new spirit. I know from my brief work in No. 10 that too small a group of people are "in the know". All this rubbish about leaking! You had a complete leak, or a complete constructive analysis, of what the Budget might be. There may have been a few rogues who have tried to make money; but there have been few in the history of the British Government of any political party who have tried to make money by knowing the secrets. Perhaps the Minister who is to reply, who is a most capable and constructive Minister, will be able to inform me. When this Budget was made, were the Ministers of Energy and Agriculture and other people of importance in the economy of the land brought in for discussion? There should be fuller discussions, whatever party is in power, among people in the key areas of the economy and agricultural and industrial production.

I remember Aneurin Bevan talking in the smoke room of the other place more than 20 years ago about the need for more people in key positions in Government to put in their say about the Budgets of the future. I think that was not done. What consultations take place?

Taking one argument for horticulture, which has not been mentioned, this Government have done nothing but throw stones at the important glasshouse industry of Britain. The other day more than 500 glasshouse owners lobbied the Minister of Agriculture. It had never been known before. Why They suffer unfair competition; they suffer from subsidies to Holland of about 40 per cent. on gas prices; and as little as possible is done to help them. The president of the National Farmers' Union took the lead in the demonstration for horticulture and fishing. Most important is the diesel and derv oil for the fishing industry. Horticulture and fishing are probably the most hardly-burdened with fuel costs. The NFU calculate that the Dutch Government give Holland's growers a cost advantage of £10,000 an acre overall against heavy fuels and twice as much against light oils. The Department of Energy should be consulted on this. It is not only 20 per cent. on petrol, it is 20 per cent. on diesel engine and road vehicle liquids, light oil and heavy oil. All are needed in the agricultural industry.

Having made that point, I make another point before I sit down. The noble Lord will know what I am talking about when I say that the phenomenon of fiscal drag is increasing. Income tax is affected too because of the progressive structure in an inflationary environment. The higher that money incomes go, the less reality there is about the amount of income tax paid. I cannot go into this at this hour. The noble Lord knows what I am implying. We have got to get rid of the fiscal drag. Countries like Canada, Denmark, Holland and Sweden have adopted measures to try to prevent this. I believe that, far from this Budget succeeding in revitalising British agriculture and horticulture, it will set it back. Consequently, I hope we shall see in the future a completely new approach to the Budget, whatever party may he in power.

9.5 p.m.

Lord Lee of Newton

My Lords, the case has been well made that this impost is going to push large sections of our industry backwards in comparison with their competitors; yet every day the Government complain about most of British industry being uncompetitive. And then they proceed to ensure that it becomes more so by stupid actions of this sort. I will not go over it all again. My noble friend spoke about the effect on the chemical industry. He is right. I can give examples of half a dozen other major industries: cement, glass, brickmaking, et cetera which will be heavily handicapped in consequence of the oil impost in this budget. I want to approach it from a different angle. I happen to have been at the Ministry of Power when Sir Maurice Bridgeman, then chairman of BP, gave me the glad news that the finds of gas in the North Sea were a commercial proposition. We knew from the geologists that we would get oil as well. It was a great day.

One envisaged a complete change in the economic fortunes of this nation. Instead of that, what have we got? Our export charges are determined by OPEC. We are now permitting them to condition our own internal charges as well. Indeed, you cannot possibly play about with the prices of petrol, derv and so on without making a complete distortion of the whole of our oil products. I recall that when we were having companies setting up in Britain to get oil, American oil companies, we always insisted that when they got a certain percentage of the market they should build their own refineries. Therefore, the continuity of turning heavy oil into petrol and so on was a continuous process. The petro-chemical industry became a great industry from the by-products of the oil when it was partly refined. It seems to me the Government at the moment have no particular type of energy policy at all.

This, under modern conditions, is almost criminal. If one looks at the 1980 Coal Act, they were there telling us that the NCB must stand on its own feet, must break even, by 1983. The future of much of our coal is in oil. But what are we doing, my Lords? Are we ensuring that as we research—I and am not speaking about the distant future; I am speaking about a year or two from now—we shall be getting large quantities of our oil from indigenous coal? Are we really going to go on with huge imposts of this type on the newest breakthrough that we have in our research and development so far as energy is concerned?

I mentioned gas a moment ago. When Sir Maurice Bridgeman told me that it was a great success I went out by helicopter to the "Sea Gem". That was the rig carrying out the drilling. She went down later, with a heavy loss of life. That great find gave us the opportunity to produce our own energy; but, prior to that, we had been dependent upon imports and indeed were importing methane from Algeria as well as from other parts of the world.

At the moment we are not utilising that remarkable discovery to the advantage of our industries. As a matter of fact, the charges that we are making for gas to industry are utterly and completely exorbitant, quite over and above anything that the industry either requires or wants, in order to subsidise the public sector borrowing requirement. Having done that—and it is almost lunacy from the point of view of policy for such things—we are forcing up prices artificially to industries which are already in very great difficulty in competing abroad. I remember when the West Midlands gas industry broke down. Every motor car factory in Britain stopped immediately. They could not continue without the gas. Here we are trying like mad to get BL into a competitive position and to get other sectors of the British car industry competitive, and we are now making absolutely certain that they have not a cat in hell's chance of competing with countries which have not any oil or gas of their own.

Heaven help us! The great finds which were to some of us going to revolutionise the whole of British industrial prospects are now gone. We are doing nothing whatever to give ourselves an advantage. Some time ago we had the artificial fibre industries pleading with the Government to help them. Why? It was because the American fibre industries were getting cheap oil, and in an oil-based industry such as artificial fibres we could not possibly compete with the Americans.

I am not trying to make a party political case at all; I am trying to make a case for a proper energy policy for this nation. The noble Lord, as much as I do wants to see us get out of this awful slump into which we have degenerated. I ask him to use his influence with his colleagues—especially at the Department of Energy—to try to make them see some sense. My colleagues—and, indeed, the noble Lord opposite—have shown that in the rural areas they are despondent. Transport costs to huge industries are now getting out-of hand. I am saying that in many of our manufacturing industries this Budget has been almost a death knell. I hope that the noble Lord will see to it that his Cabinet colleagues understand that in this day and age a nation cannot go on without a policy on energy. They really will have to make some sense out of the great discoveries that they have made.

The alternative is to go on as we are: spending the proceeds of the North Sea on unemployment benefit. At the end of that our great assets will have gone. It will be a criminal shame if that happens.

9.13 p.m.

The Minister of State, Treasury (Lord Cockfield)

My Lords, if I may quote from Edmund Burke: To tax and to please is not given to any man". The noble Lord, Lord Underhill, started by quoting statements made by representatives of the road haulage industry and by the motoring organisations criticising the increase in the tax on petrol. My Lords, what did he really expect them to do? Did he expect them to welcome these increases? Did he expect the brewers to welcome the increase in the tax on beer or the distillers to welcome the increase in the tax on whisky? Did he expect the tobacco manufacturers to welcome the increase in the tax on tobacco? When the Labour Government were in power, did he expect the income tax payers to welcome the continual increases in income tax that the Labour Government imposed upon the suffering British people? Surely he is not as naive as all that.

We regret the necessity for increasing taxes in this way, but necessity indeed it is, and I must therefore refer briefly to the background which has made these measures essential. In the year just ending—the present year—the Government's borrowing requirement (that is, the amount of their expenditure exceeding the amount of revenue the Government collect) is £13½ billion. If nothing were done, the borrowing requirement in the coming year would be £14 billion on a conventional basis and £15 billion on a revalorised basis. The judgment of my right honourable friend the Chancellor of the Exchequer was that it was essential to reduce that borrowing requirement to £10½ billion, both to maintain the downward path of inflation and to allow interest rates to be reduced. These were the two main objectives of the Budget and they are both of very great value to industry and to the private citizen, as well.

May I remind the noble Lord that the expenditure plans bequeathed to the present Government by the Labour Party would have involved expenditure of no less than £5 billion a year higher than in fact it will be next year. With the Labour Party in power, therefore, we would be talking not in terms of 20p a gallon on petrol but in terms of £1 per gallon increase on petrol if we were to finance the profligate plans the Labour Party had set out in detail in their then programme. Since then, of course, they have committed themselves—if "committed" is the right word—to an even higher level of public expenditure, which would carry with it an even higher level of taxation.

But given the overriding necessity of reducing the amount of the Government's borrowing requirement, it was essential that substantially increased taxation should be raised, and this necessarily involved significant increases in indirect taxes. My right honourable friend proposed increases in all the indirect taxes amounting in the aggregate to approximately £2½ billion. The noble Lord in fact claimed that petrol was being "lumped in" with taxation imposed on the luxuries of life. One of the principles of taxation which was learnt many years ago is that one is enabled to raise these large sums of money on the taxation of alcohol, tobacco and in these days petrol, because they are no longer regarded as the luxuries of life: they are part of the conventional standard of living. If they were not, it would not be possible to raise revenue on this scale.

Of the total increase of £2½ billion proposed in the Budget in indirect taxes, nearly half comes from the increased taxation of petrol and derv. It would be quite impossible to raise a sum of this magnitude from indirect taxation in any other way. I will not go through the figures in detail, but if noble Lords care to study the Budget red book, the financial statement in the Budget Report, they will see how totally impossible it would be to raise the required sums of revenue unless substantial increases of taxation were imposed upon both petrol and derv.

We realise, of course, that these are very significant increases but it still remains the position that the price of four star petrol, in real terms, is just about the same as it was at this time last year. Despite the increase of 20p, the actual price of four star petrol at the pump is almost exactly the same as it was last year. The price is actually lower in real terms than it was under the Labour Government in 1974.

I have been talking about the price of petrol. If we now look at the tax, that is less in real terms than it was in 1950; it is less in real terms than it was in 1960 and it is less in real terms than it was in 1970. Before the Budget, the price of petrol in the United Kingdom was the lowest in the European Community, with the exception of Germany. After the increase now made, the United Kingdom price will be broadly in line with the rest of the Community, with only Germany and the Netherlands significantly lower.

It is perfectly true that derv prices are higher in this country than they are on the Continent. This is a position which has existed for many years. But several of the European countries with low derv prices have rates of vehicle excise duty on diesel engine vehicles which are much higher than those charged in the United Kingdom. It is necessary, therefore, if one looks at derv to look also at the burden of the vehicle duties.

May I turn from that to the question of the impact of the increase in the tax on the rural community? We, of course, all sympathise with the points made by my noble friend Lord de Clifford. We realise the great problems that many people in rural areas face. But I do not think that we should blame all of those on to the motor-car or on to petrol.

May I say in passing that, while it is true that in rural areas people are particularly dependent upon the motor-car, the same is increasingly so in other parts of the country as well. There are currently about 14½ million private motor-cars on the road, and another 1½ million motor-bicycles and three-wheeled vehicles, making a total of 16 million. The number of households at the last count was, in fact, about 18½ million. So that, even allowing for the fact that some people have more than one motor-car, most households have access to a motor-car, whether they are living in town or in the country.

It is true, of course, as my noble friend has said, and as, indeed, other noble Lords have said, that the rural driver tends to cover a somewhat higher mileage, but not, I may say, dramatically so. For example, one recent study put the higher mileage at about 8 per cent. Very largely, this higher mileage is offset by a lower petrol consumption, and there is no conclusive evidence that the actual user of petrol, in terms of gallons, is significantly higher in rural areas than it is in the towns—

Lord Underhill

My Lords, will the noble Lord kindly give way? The important question is not whether there is access to a car in the towns, but the dependence upon it. Whereas in the towns there is usually alternative transport, in rural areas there is not.

Lord Cockfield

My Lords, I am aware of the point that the noble Lord makes. What is important is the extent to which the vehicles are used and the quantity of petrol that they burn, because this is what determines the amount of tax which is paid. Whether or not there is public transport, there is very extensive use of private motor-cars by people commuting into the large towns. In fact, in many ways the people who probably cover the highest mileage of all are those who live in the country and work in the towns. There are one or two misconceptions on this that I should like to clear up. The first one is this.

Tractors and other agricultural machinery do in fact use gas oil which is charged at only 3½ pence per gallon, and the duty on gas oil has not been increased in this Budget. The same, broadly, is true of fishing vessels. Most fishing boats get full relief from the duty and in most instances they would use gas oil rather than derv. There is also an arrangement under which stage buses are given relief in respect of the duty on either the petrol or the derv that they use. This is done by way of fuel duty grant from the Department of Transport. This is the same as the duty itself and it has been increased in line with the duty. Therefore, so far as public transport by way of stage bus services in the rural areas is concerned, they are completely protected from the increase in the duty. In the case of the railways also, diesel cars use gas oil which pays duty again only at 3½ pence per gallon. The suggestion which was made by the noble Lord, Lord Davies of Leek, that glasshouses are heated with petrol or derv is a new one to me. So far as I know, they use neither of these fuels. They are not therefore affected by the increase in duty which is the subject of the Question asked by the noble Lord, Lord Underhill.

May I now turn to the question of industry. The impact on industry should not be exaggerated. As I have said, the increase in the price of petrol, for example, is much in line with the increase which has occurred in prices generally and the increase in derv will add a comparatively modest amount both to transport costs and to total business costs. I think perhaps it is only fair that I should remind noble Lords opposite that under the Labour Government, derv was charged at a higher rate of duty than was petrol. We abolished that differential last year, with the result that derv is now charged only at the same rate of duty as is petrol.

There is a further point of importance: that a business is entitled to treat the VAT element in the cost of either its petrol or its derv as a deduction against its output tax, and this is equivalent to a relief which reduces the figure to no less than 17.4p per gallon. We do of course realise that these increased duties will impose a burden on industry. There is no escape from that. At the same time, however, they form part and parcel of a budget which gives substantial relief to industry generally. This relief amounts, in a full year, to somewhat over £650 million. The most important item is the new stock relief which will give industry a benefit in relation to its 1981 profits of no less than £450 million. There is a whole series of new enterprise reliefs in my right honourable friend's Budget which will give relief amounting to £89 million in a full year. The special help which is now being given with fuel costs will give a further benefit of £120 million a year to industry. But the most important effect of all, so far as industry is concerned, is the reduction in minimum lending rate which the Budget has made possible. MLR has been reduced by two percentage points from 14 per cent. to 12 per cent. It now stands very significantly below the peak of 17 per cent. which was reached in the autumn of 1979, and as economic circumstances permit it is our intention to reduce rates of interest further. That is as circumstances permit.

The important point about this Budget is that it has paved the way for a progressive and continuing reduction in the rate of inflation. It has paved the way in the medium term for lower rates of interest. Both those matters are of substantial benefit to industry. An immediate price has to be paid in terms of increased taxation, but in the long run that price will be a price well worth paying.

I am grateful to the noble Lord for tabling his Question. It has enabled me to explain the background which has necessitated the increase in these duties, to put the matter into much better perspective and, above all, to indicate that the Budget offers real hope for the future by way of a lower rate of inflation and, in the medium term, lower rates of interest.