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Finance Bill

I wish to respond to new clause 7 on behalf of the official Opposition. The hon. Member for Dundee, East (Stewart Hosie) introduced it succinctly. In essence, the new clause tries to establish a device for reacting to increases in the price of oil and for reducing duty automatically when certain conditions, which the amendment specifies, occur. It is an important subject for the Treasury and for taxpayers, including hauliers and motorists generally. Duty on hydrocarbon oils raised slightly less than £23 billion in the financial year 2003–04, representing roughly 5 per cent. of total Government tax revenues in that year. According to the Library, the UK has the second highest pump price for unleaded petrol in the European Union after the Netherlands, and the highest pump price for diesel, which is clearly especially important for hauliers. The UK also has the highest taxation on petrol in the EU, with approximately 70 per cent. of the pump price of unleaded petrol being accounted for by a combination of taxes and duties.In addition, there have been further increases in world oil prices in recent months. Oil was trading last week at more than $59 a barrel. When I checked this morning, Brent light contracts for August had opened at just over $58 a barrel. Given that VAT is part of the final price for petrol and diesel, that has brought in additional revenue to the Treasury. In the light of that position, the Government issued a written ministerial statement only yesterday afternoon, in which they confirmed that, following sustained pressure from G8 Finance Ministers, the Organisation of Petroleum Exporting Countries is committed to increasing production quotas by up to 1 million barrels a day by September 2005. Nevertheless, the Government are abandoning their planned inflation increase in the price of main fuel duties, including petrol, which was scheduled to come into effect on 1 September this year. That was probably a fair decision. Given the current oil price, it would not have been right to proceed with a further increase at this time. The House has to decide whether, given yesterday’s decisions, it would be appropriate to accept new clause 7 as well. To decide, we must examine the elements of the new clause. We have no major objection in principle to the suggestion in proposed subsection (1B) that the Chancellor should include an annual projection of estimated trends in oil prices as part of his Budget statement. Oil is a major fuel for the world’s economy and fluctuations in its price have implications beyond simply the price of road fuels, extending to air travel and important sectors of manufacturing industry. As was rightly pointed out by Labour Members earlier, the Red Book already contains a number of assumptions about future oil prices, so the Treasury has told us something of its expectations. I presume that those who tabled the new clause wanted to formalise that projection: perhaps they thought that the Chancellor could make it one of the headline projections in his statement, along with those on growth and borrowing. As I said, however, the Treasury already puts some of the information in the public domain. Subsection (1C) proposes a mechanism whereby if the price of nominated fuels rises by more than 3p a litre over six months, the Government will scale down the increase in duty by an amount equivalent to the extra VAT that is payable on the increase. The new clause does not really make it clear how the calculation would be made or how the arrangement would operate. Would the six-month average be a rolling average, for example? The wording seems to imply that, but we would like clarification. Subsection (1C) also does not make it clear how long the discount would last. Would the period between the 3p trigger and the coming into effect of the attendant regulations be very brief, or could the regulations be retrospective over the entire six months if necessary?The new clause says that the Chancellor must produce regulations, but it is not specific about the timing. Moreover, a brief spike in the oil price lasting for, say, a fortnight could theoretically affect the average sufficiently to trigger the mechanism. A fair amount of work and administration could be required for what constitutes a relatively small price reduction. There is also the practical question of how people would be reimbursed, if they were reimbursed at all, for duty that they had already paid at the pump earlier in the six-month period, before the trigger kicked in. Or would the refund go to the oil companies, but not to the motorists or hauliers?