Morning

Mr. Ian Mearns (Gateshead): It is a pleasure to serve under your chairmanship, Mr Hood.

On the collaboration between the Treasury and the Department of Health about tackling the issue of youngsters and binge drinking, I am not convinced that the best way to do so is to have an additional duty on high-strength alcohols. From a health perspective, or the perspective of trying to stop youngsters drinking to excess, additional taxation on alcopops would be much more adventurous by the Treasury.

Kerry McCarthy: My hon. Friend is right in that several complex issues have to be addressed. The market in alcopops is not as significant now as it was about 10 years ago, when they were introduced. The evidence is that young people are turning more to straight spirits such as vodka, but they are still a significant factor. There has been a growth in such areas as the new cider drinks that are attractive to young people.

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Mr. Ian Mearns (Gateshead): On the proposals, the British Beer and Pub Association was critical of the decision to introduce a higher rate on beer only. Alcohol Concern welcomed them, but thought they would have a small impact on alcohol-related health problems. I must admit that I am struggling to see where the thrust of the Government policy is. Can we tease that out from the Minister later?

Kerry McCarthy: That is entirely right. On the one hand, the industry producing premium beers is concerned that the measures would have a negative impact on it. On the other hand, people concerned about binge drinking and the consumption of high-strength beers say that they will not have an impact on behaviour, so why is the high-strength beer market being singled out?

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Mr. Ian Mearns (Gateshead): Every time there is a large football match and Wembley stadium is full of 80,000 or 90,000 people, I think of how that is roughly the number of people who die prematurely every year from the effects of smoking. I may be a bit of a prude about smoking, but I believe it cannot be taxed enough. At the same time, we must do more to tackle the issue of contraband and illegally imported or manufactured cigarettes. That is an important issue in communities such as my constituency of Gateshead.

Kerry McCarthy: I thank my hon. Friend for that intervention. I was coming to the tobacco industry and the issue of revenue-raising, rather than the public health debate. The Government are protecting revenue from tobacco duty, which continues in the direction of travel taken by the previous Government. The tobacco industry believes that raising the price of cheaper cigarettes, rather than more expensive ones, will encourage fewer smokers to cross into the non-UK duty-paid sector.

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Mr. Ian Mearns (Gateshead): We have carried out some interesting work in my area on tackling contraband and smuggled tobacco. There have been raids on what are known locally and colloquially as tab houses, where sometimes stolen, sometimes smuggled, sometimes contraband tobacco is sold out of people's houses. Much of that work had to be co-ordinated by HMRC, without which it would not have been as successful as it has been in our locality. It is vital that such work continues to tackle that real scourge of local communities in places such as Gateshead.

Kerry McCarthy: My hon. Friend the Member for Gateshead is right. Occasionally, high profile cases are reported of HMRC's success in cracking down on tab houses. I must admit I have not heard that phrase before - it must be a northern thing, or a north-eastern thing in particular. I am not sure what the equivalent colloquial term is in Bristol, if such a term exists.

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Mr. Ian Mearns (Gateshead): I am listening intently to the Minister, as I am interested in the subject. Is there not evidence that tobacco and cigarettes manufactured here are being exported to other European countries and deliberately re-imported in order to escape duty? We are having discussions with the Tobacco Manufacturers' Association and representative companies who are engaged in this illegal trade.

Justine Greening: Those concerns have been put to us by health groups concerned about tackling smoking. We want to tackle illicit trading of all kinds in this arena, and we obviously work with the industry on that.

I direct the Committee's attention to the recent publication by HMRC and the UK Border Agency called "Tackling tobacco smuggling - building on our success." I recommend it; it is an unusually good read for a Government document. Having worked on its development, I know that it is about the right length and that it contains an awful lot of useful information on what we are doing but does not waffle too much.

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Mr. Ian Mearns (Gateshead): Will my hon. Friend give way?

Kerry McCarthy: I will let the hon. Gentleman come back in and then let my hon. Friend intervene.

Alec Shelbrooke: I address my comments to the hon. Lady, as I would not want to intervene on an intervention. Surely the promise made in 1997 - and 2001 and 2005 - not to raise income tax, and then to double the 10p rate of tax and increase national insurance, which was a tax on income, was indeed a broken promise.

Kerry McCarthy: I think that we are straying -

The Chair: Order. This is an opportunity for the lenient Chairman to remind the Committee to address the amendment. Hon. Members have been tempted away from the amendment that is before the Committee and I invite them to come back to it. I also invite the hon. Lady to speak to her amendment.

Kerry McCarthy: Okay, Mr Hood. Could I allow my hon. Friend the Member for Gateshead to intervene?

Mr. Ian Mearns (Gateshead): I am grateful to my hon. Friend for allowing me to intervene, but I will resist the urge.

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Mr. Ian Mearns (Gateshead): In these debates and exchanges, we often hear accusations of deficit denial from the Government Benches. The Minister speaks of the rise in unemployment at the back end of the Labour Government, but we had just been through the biggest post-war international financing and banking crisis. That was not the product of Labour Government policy in Britain but of the international banking crisis.

Kerry McCarthy: Exactly; the Government choose to ignore the fact that it was caused by a global crisis that started in the US financial markets. History will prove that the Labour Government took exactly the right steps under the stewardship of my right hon. Friends the Members for Kirkcaldy and Cowdenbeath (Mr Brown) and for Edinburgh South West (Mr Darling). Although we were faced with external factors that were having a real impact on the UK, we took the necessary steps to limit the damage. Where possible, people's jobs and livelihoods, and our businesses, were protected.

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Mr. Ian Mearns (Gateshead): Until deregulation in 1986, my area had a good, efficient, integrated transport system where the metro and the buses used to work together. Now they are in competition, which is wasteful, particularly when diesel duty at 81 p a litre is higher than anywhere else in Europe.

Kerry McCarthy: That is a significant factor, although I think that my hon. Friend's area has a passenger transport executive or authority or something like that. It is one of those things where the title is "strategic" one minute, and the next it is "integrated". However, it would make a real difference if one was introduced in Bristol. As hon. Members have suggested, we should not forget that public transport is as affected by the cost of fuel as people are in their private cars. It is not just a question of the impact on the motorist. Green and environmental groups have sometimes challenged, for example when we opposed the rise in VAT to 20% and challenged the impact it was having--

Afternoon

Alec Shelbrooke: I am aware, because I read the same tweet. The trouble with tweets is that there are only 160 characters, and we would be wise not to cast judgement on 160 characters out of a Select Committee.

Mr. Ian Mearns (Gateshead): One hundred and forty.

Alec Shelbrooke: I stand corrected.

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Mr. Ian Mearns (Gateshead): Before we get to a mass market for electric vehicles, though, is it not more likely that hybrid vehicles will be much more prevalent on the roads of Britain? They will continue to consume petrol, but at a reduced rate. I understand that a French manufacturer proposes to introduce a car to the market next year with a mileage of about 140 miles per gallon. It is a half-electric, half petrol-driven vehicle. That is an interesting stepping-stone to the all-out electric vehicle of the future.

Alec Shelbrooke: Again, the hon. Gentleman makes a valid point, but the key point is that we have gone from combustion cars with an average mileage of 40 mpg to cars with 140 mpg. The knock-on effect is that people will buy less petrol, so less money will come to the Exchequer. We are starting to move in a direction that means that we do not need to make such hikes in the price of fuel. Maybe some inflationary hikes will occur, but we must be careful about how much we start to rely on the duty on fuel.

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Mr. Ian Mearns (Gateshead): May I add my weight to the wishes for your birthday, Mr. Hood, which I understand was yesterday? I wish you a belated happy birthday.

I do not own a car, so I have no personal interest in the price of fuel duty. I do occasionally hire a car, and I have noticed how much it costs to fill a petrol tank when I do so, but that is few and far between, so I have only a very small personal interest in the value of fuel and how much duty is placed upon it. I want to concentrate on the impact on business in a region such as the North-East of England. My hon. Friend the Member for Middlesbrough South and East Cleveland talked about the impact on heavy industry in the sub-region of Teesside, but I have had a lot of lobbying from small and medium-sized enterprises and their representative organisations about the cost of fuel duty and how it impacts on businesses in a region such as this. I also want to talk a little about the impact on working families and those vulnerable people who rely on the mobility allowance to pay for fuel just to get out of the house. It is having a disproportionate impact on their living standards and overall well-being.

Following on from my hon. Friends the Members for Sefton Central and for Wirral South, I wanted to mention the comments of the hon. Member for Elmet and Rothwell. I was not convinced by his economic analysis, particularly after he attempted to impose 14% inflation on the number characters in a tweet. I want to concentrate on the stabilising influence that the Government can have on the value of fuel, and how that can then facilitate better business planning. In a European context, as we try to grow out of recession, we have the highest fuel duty, particularly for diesel, in the whole of the EU, significantly higher than other countries. That has a negative impact on businesses that we are relying on in growing our way out of the recession.

When we talk of a stabilising influence on fuel, we cannot forget that prior to the general election in 2010, the majority party in the current Government said it would consult on the introduction of a fair fuel stabiliser, which would cut fuel duty when oil prices rise and vice versa. That would ensure that families, businesses and the whole British economy were less exposed to volatile oil markets, and that there would be a more stable environment for low-carbon investment. The junior partners in the coalition in their manifesto proposed a rural fuel discount scheme with a reduced rate of fuel duty in remote rural areas, as allowed under EU law, and preparation for a system of road pricing to be introduced in a second Parliament.

The proposals we have from the Government are a million miles away from that. I am concerned about the prospects for growth in a region such as the North-East of England, where there is a disproportionate impact of fuel duty on the regional economy. In Opposition, the Prime Minister made promises to keep down the cost of fuel duty by pledging to introduce the fair fuel stabiliser. When his party launched the idea of a fuel stabiliser in July 2008 it promised it would vary taxation on fuel based on changes to petrol and diesel prices. The principle of the plan was that when fuel prices went up, fuel duty would go down. That commitment to the fair fuel stabiliser was expanded on and reaffirmed by the Conservatives in their manifesto. The soon-to-be Prime Minister went on about the fuel duty stabiliser in his speech on 28 April 2010 at the Coca-Cola plant in Morley. He said,

"One of the unspoken things in this election as well, is what more can we do to help people with the cost of living? One of the biggest things for people right now is filling up your car. You know £1.20 for a litre of petrol or a litre of diesel. Now there's a big deficit so we can't make big promises but we could at least stabilise it."

There is something that concerns me as an MP in the North-East, one of the remote regions of England with regard to engagement in the main part of the economy. That is the differential impact of fuel duty policy in the English regions. An analysis of road freight statistics by the North-East chamber of commerce demonstrates the extra burden that fuel taxation places on businesses in the North-East of England. Each tonne of freight brought into or out of the North-East delivers £4.16 in fuel taxes to the Exchequer, which is 18% higher than the average for English regions of £3.52 and 74% higher than the average for London. The analysis shows that there needs to be more careful consideration of the economic impact of fuel duty rates on the regions, because they have a disproportionate impact on the regions away from the south-east.

Road freight statistics show the extra distance travelled by goods transported into or out of the North-East compared with other parts of England. Every tonne of freight transported by road into or out of the North-East travels an average of 119 miles, or 191 km, compared with an average of 162 km, or 101 miles, for all goods travelling between the other English regions. Only businesses in the south-west transport freight further by road, with each tonne of goods coming in or out of that region travelling an average of 192 km, which is just less than 120 miles.

Duty on diesel currently stands at some 58p per litre. The VAT chargeable on fuel duty brings the total impact to 66p per litre. A typical fuel consumption rate for road haulage is 8.5 miles per gallon, which means each kilometre travelled provides the Exchequer with 22p in tax. On that basis, and given an average load of 10 tonnes, each tonne of freight transported into or out of the North-East delivers £4.30 to the Exchequer in fuel taxes, compared with the English average of £3.52.

Many hauliers in North East chamber of commerce have no choice but to pass a proportion of those costs on to customers, the vast majority of whom are in the North-East. Therefore, it is an added cost to growing a business, and to being in business at all, in the North-East.

The North East chamber of commerce argues that decisions on fuel duty need to take greater account of the impact on businesses in each part of the UK and a more considered approach to the automatic increases fixed in Government policy for years to come. The figures exclude goods transported within regions, because the impact is broadly the same in each region.

The North East chamber of commerce's evidence is supported by the North-East regional committee of the Federation of Small Businesses, which also argues for the stabilisation of fuel duty, because it helps business planning.

Despite the fact that it was in the manifestos of the majority parties, in January the Chief Secretary to the Treasury said of the fuel stabiliser:

"It's a complicated idea and it's difficult to see precisely how we achieve it, but it's something that we are looking at very carefully to see if we can reduce the burden of fuel duty."

The Federation of Small Businesses does not agree with that analysis. From its perspective a fuel duty stabiliser is relatively simple to implement and could be introduced within a matter of months. The concept could be straightforward: when oil prices increase, the stabiliser would allow Government to reduce duty to a lower limit; and when oil prices fall, the Government would be able to raise duty to a higher limit.

Critics cite the difficulty of knowing whether fluctuations in oil prices are temporary or are likely to persist beyond the near-term. It would be difficult, therefore, for a fuel duty stabiliser to set duties effectively. To counter volatility in the price of oil, a fuel duty stabiliser would need to be based on official forecasts of the future price of oil and adjusted at regular periods according to the actual price.

There is a simple way of doing that. A fuel duty stabiliser should be based on official forecasts of the oil price cycle, as advocated by the economist Andrew Lilico. The oil price cycle is the long-term prediction made by economists of the pattern of oil price fluctuations over a period of time. Using the oil price cycle as a basis for a fuel duty stabiliser, the level of fuel duty would be calculated against a trend price for oil. It would then be adjusted following changes to the official view of the oil price cycle.

6.30 p.m.

There have been criticisms, particularly from the Government. The Chief Secretary to the Treasury, in responding to calls for the introduction of a fuel duty stabiliser, said:

"We can't sacrifice income willy nilly."

But while we do not implement such a measure, businesses, particularly in regions such as the North-East of England, are suffering because of the high cost of fuel. As I have pointed out, that cost is high against that of European competitors. When we are competing in international markets for business, particularly in areas such as manufacturing, it has a significant marginal impact on the cost of getting goods to market and the prices that businesses can quote for their goods.

If set correctly, the fuel duty stabiliser could still be fiscally neutral for the public finances and provide much needed economic stability for the United Kingdom's economy. In September 2010, the Office for Budget Responsibility produced a report looking at the effect of oil price increases on the economy, with a possible view to introducing a fuel duty stabiliser. That report looked at the effect of oil price increases over a four-year period and came to the conclusion that, while the Government would receive extra revenue from increased oil prices, that would be wiped out by other offsetting effects on the economy, such as a contraction in economic output due to the high price of oil. That analysis is correct, but it fails to take account of the flexibility afforded by a stabiliser based on the oil price cycle, which would make it fiscally neutral.

Critics fail to take account of the wider economic damage that high fuel prices have on the economy as a whole. In spring, the International Energy Agency warned that high oil prices are becoming a threat to the economic recovery of OECD nations - of which the UK is part - due to its effect on national and personal budgets. The current high price of fuel and the lack of mid to long-term certainty over future prices means that our economy is being hit hard, at a time when we can ill afford it. Recent research by the Federation of Small Businesses shows that 62% of companies said they will have to increase prices if fuel costs continue to rise. One in 10 small businesses said they will lay off staff, and some 26% said they will freeze wages. That is a huge concern, because unemployment has reached 2.5 million. We have already seen a differential impact on unemployment, where unemployment nationally has fallen 17,000, but in the North-East it has risen by 11,000, in a relatively small area in terms of overall population.

Small businesses are not able to absorb the cost of fuel price increases like big business and they are being badly hurt by the current prices. Perhaps more than the high price of fuel, it is the uncertainty over future fuel costs that stops small businesses from being able to plan effectively and grow their business into the future. A measure to stabilise fuel duty would give the certainty and stability the UK's 5 million small businesses need to factor fuel costs into their business expansion plans.

A fuel duty stabiliser or a stabilising effect could increase the stability of the public finances. Further to that, the introduction of a stabilising measure would also give more certainty to the state of public finances.

The rise in inflation impacts on people's living standards and leads to wage increase demands, turning what could be a temporary impact of high oil prices into inflationary pressure on the economy. A stabilising measure would iron out the knock-on effects of inflation due to increases in the price of oil and act as a brake on inflation, limiting the damaging effect inflation has on our economy. In December 2010, inflation rose to 3.7%, the highest increase in the cost of living for eight months. That was largely due to the 2.8% rise in the cost of fuel.

"It is time for the UK government to dust down its idea of a fuel price stabiliser operated through variable taxes on fuel, starting now with a reduction, to take some of the inflationary pressure of this latest move out of the system."

That was said by the right hon. Member for Wokingham (Mr Redwood) in January, so there are people on the Government Benches who think that the fuel duty stabiliser would be a good idea.

Fuel duty is, in theory, an environmental tax that can play a vital role in reducing carbon emissions by encouraging a shift towards low-emission vehicles and alternative forms of transport. The impact of fuel prices has been highlighted in important policy documents such as the Stern review, and a stable carbon price helps households and businesses to plan ahead and factor environmental costs into medium and long-term plans. I have taken enough of the Committee's time, Mr Hood, but the Government need to think about the variable impact that fuel duty has in different parts of the United Kingdom, and particularly in regions such as North-East England.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

The full transcript may be read here.

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