Mr Redwood’s contribution to the opposition debate on Fuel Duty, 12 Nov

Mr Redwood (Con) (Wokingham): I am very grateful. Will the hon. Lady (Cathy Jamieson) explain which specific tax loopholes Labour would close that the Government are not already closing, and why does Labour not provide any money after April when they would be putting the tax up again?

Cathy Jamieson (Lab) (Kilmarnock & Loudoun): I absolutely will explain that. We think that there are loopholes that can be closed, and I am sure that the Government will also want to close every possible loophole. For example, there is a growing problem with some employment agencies forcing workers to become employees of umbrella companies. They then falsely inflate the workers’ travel and other expense claims, reducing tax and national insurance and pocketing the avoided tax as profits. Her Majesty’s Revenue and Customs forecast in 2008 that the cost to the Exchequer of that avoidance would be around £650 million by 2012-13. More recent reports have suggested that the current tax loss could be as high as £1 billion. Even if only a proportion of that money was recouped, it could pay for the fuel duty rise to be postponed.

As I said earlier, I know that many Government Members feel strongly about this issue. We have heard over the weekend and today all the talk about the Chancellor being in listening mode, but at the same time the Treasury’s official line is that no decision has been taken. Nods and winks are no good to families struggling in the run-up to Christmas. The approach that says “It will be all right on the night” is no use to the small business trying to balance the books and plan for the first quarter of next year. If the Chancellor has made up his mind to delay the duty rise, his Ministers should say so, and they should say so today. If we do not hear that announcement loud and clear, every hon. Member who wants to see the increase dropped should not only talk the talk tonight, but walk the walk; they should walk into the Lobby with us and vote for the 3p increase to be delayed.

Mr John Redwood: The Opposition are right to highlight the issue of the cost of living, and it is timely that we are having a debate about the pressures on it. It is particularly timely that we are having a debate about the pressures that the outgoing Labour Government imposed on the cost of living, which still remain. I am thinking of the hidden increases in petrol duty, and all the other measures that they left in place or that were needed if we were to try to combat the deficit.

There is no doubt that the squeeze on people’s real living standards has been very severe in the last four years. It was most severe under Labour during its slump, but it has continued under the coalition Government. One of the reasons for the intensity of that squeeze on real incomes is the fact that price inflation has remained obstinately high, partly as a result of indirect taxation and partly, as the Minister said, as a result of world pressures on commodity markets.

I find myself unable to support the motion, which may come as no surprise to any Member on either side of the House. I consider it to be defective in two important ways. First, I do not think that a temporary three-month freeze will solve the problem. A double whammy in April, which is what Labour proposes, could be even worse, because people will not have become used to the rising fuel price that was inherent in the Labour plans.

Fiona O’Donnell (Lab) (East Lothian): The right hon. Gentleman suggests that three months do not constitute a long period, but they will be three months of cold weather, during which people will be having to cope with an increase of up to 11% in their energy bills. The three-month freeze would make a difference.

Mr Redwood: I am all in favour of lowering energy bills, although that is probably a topic for another day and another debate. I have made many suggestions to the Government, all of which I think Labour would find unpalatable. I have, for instance, suggested possible methods of making gas much cheaper, thus reducing prices for all our constituents and affecting real incomes in a way that would please me, but is not often favoured by my party.

I think that the first part of the motion is flawed because what it proposes would not solve the underlying problem, namely, the tax increases left by the outgoing Government, but I am not very happy with the second part either. The Minister said that he did not think the Opposition had done their sums properly before proposing the measure to deal with tax avoidance, which they say would pay for the temporary lower duty rate. It was interesting to hear from him that the Labour Government had considered a scheme relating to travel costs, but had decided that it would be unwise to pursue it. We do not know whether they made that decision because of the impact that it would have on people or because it would not bring in enough revenue, but it appears from what the Minister said that there was an issue involving the amount of revenue that it would raise. For those two reasons—it would not solve the duty problem, and the numbers do not add up—I think that it would be unwise for the House to support the motion.

As for the coalition Government’s amendment, I find myself particularly in agreement with the final words, in which we are asked to welcome

“the Government’s commitment to do more to help with the cost of living in future”.

I was interested to hear the Minister not only say that he understood the points that many of my right hon. and hon. Friends had been making about the level of fuel duties, but imply that action might be forthcoming in the autumn statement and the subsequent Budget statement to tackle that or related problems. I shall be happy if the Government tackle the over-burden of taxation in a variety of ways. I do not think that we need be too prescriptive tonight. We know that an autumn statement is coming up, and we know that there will be a Budget statement after that. However, I want to address my few remarks in this short debate to the issue of what the commitment to do more to help people in the future might amount to in those two important statements of Government policy.

The first point that I hope the Government will grasp is that this country’s problem is not that it is undertaxed. If we look at the budgets and the state of the national finances, we see that there is every sign that successive Governments have tried to increase the tax burden substantially to keep pace with accelerating current public spending. I think that we have now reached the point of no return—the point of saturation. The high rate of income tax introduced by Labour has led to a big fall in income tax receipts at the top level, which is not very surprising—and which, of course, is of no interest to Labour Members. They had their little jibe about millionaires, but they should be asking themselves what tax rate will cause rich people to make the maximum contribution to filling the massive financial hole in which we find ourselves.

We are well above that rate now, as the figures clearly indicate. I think that the Government will find that their higher rate of capital gains tax also collects rather less revenue than before, or than they would like, and that fuel duties, while probably still contributing some increment to taxation, are not creating as big an increment as they would like either, as people simply cannot afford all the fuel that they used to buy because the duties are so high.

We know that more than 60% of the pump price—and the price of petrol and diesel in this country is currently very high—goes, in one form or another, to the UK Government. Of course, part of the rest of the price goes in taxes to other Governments so that they can produce the fuel in the first place. A massive amount of tax is being taken by the British Government directly, along with the 60%-plus that is taken by them indirectly through the tax on oil companies, and by foreign Governments in their taxation on the oil. The motorist is seen as an easy target for huge amounts of tax in an attempt to meet the bills. I hope that, when considering ways of easing the cost of living, the Government will bear in mind that motorists and business drivers—people who are trying to power the economic recovery—are incurring very large bills through this particular tax.

I think that all Members agree with two propositions about the economy. First, we would like it to grow faster, and secondly we would like to make big cuts in public spending by getting people back to work, so that they can earn more in jobs than they can receive in out-of-work benefits. Those are the aims that the Government must pursue. They have told us that they wish to make work more worth while. It is now clear that the economy has had a good job generation capability in the private sector over the last couple of years or so, and that is very welcome. However, we now need to ensure that we can reduce public spending by getting many more people into jobs, so that they require less benefit support, and we need to do that partly by cutting tax rates, so that we can collect more revenue in a friendlier way.

There is no doubt that we have tax saturation, and the Government need to take that on board for the purposes of the autumn statement and the Budget. We should reject the rather foolish motion, which was never going to ensnare many Conservatives—Labour will have to get better at ensnaring Conservatives, if that is its game—and support, and ensure that the Government deliver on, their proposal to do more about the cost of living, because that is a very real issue which worries many of our constituents.

8.29 pm

Mr William Bain (Glasgow North East) (Lab): I was intrigued by the Economic Secretary’s arguments when he moved the amendment. He is no longer in his place, but wherever he is at the moment, I hope he can afford enough fuel to return to planet Earth, as that was not a place he was able to inhabit much during his contribution. He spoke of the fanfare of international approval for the Chancellor’s policies, yet the OECD says that this year demand in our country will be one tenth of that in the United States and in the lowest fifth among EU countries. He said this Government dealt in costed spending commitments, from the very Dispatch Box where a few weeks ago the Prime Minister caused chaos in the energy industry by saying every consumer would be on the lowest possible tariff. The Economic Secretary also boasted about taking action on high commodity prices on behalf of a Government who are blocking the enactment of a global Dodd-Frank Bill in line with the successful approach in the United States.

Last week’s election in the United States showed that for voters both across the Atlantic and in the United Kingdom the key issue is living standards. During the longest journey out of an economic slump in Britain for 140 years, living standards have declined at a more prolific rate than during the recessions presided over by the Conservative party in the 1980s and 1990s. As last month’s Office for National Statistics study of well-being showed, on the net national incomes measure, incomes in the second quarter of 2012 were 13.2% lower than before the start of the great recession in 2008. We should be under no illusion: a real economic recovery for millions of lower and middle-income people in this country will not happen until these trends show signs of being reversed.

Mr Redwood: Does the hon. Gentleman agree that the biggest fall in living standards occurred on Labour’s watch, when boom went to bust?

Mr Bain: Tax credits helped to sustain family incomes in that period, but that is precisely the part of the tax and benefit system that is under such great assault from the Government the right hon. Gentleman supports.

We need a long-term strategy to tackle declining living standards, but there are short-term measures we can take now that will help ordinary families. We can have a cut in VAT and not proceed with the 3p rise in fuel duty next January. Both those measures would help to restore growth to an economy that has been starved of it for a year, and which is smaller now than at the time of the Chancellor’s comprehensive spending review of October 2010.

Despite a decrease in the headline consumer prices index inflation rate from 5.2% to 2.2% since last October, costs of basic goods such as electricity and food are going up. Average electricity bills are up by £200 since the coalition took office, taking the average bill to £1,310 a year. Costs for childminders for the over-2s in Scotland have risen at nearly twice the CPI inflation rate this year. Living costs are, therefore, soaring for millions of people.

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  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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