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Finance Bill

I suspect that Gazprom, or some of the more centralised old Soviet planners, might be able to take a view on the correct baseline for oil. I must confess that I do not know how one could set that baseline, other than very subjectively. What would be a fair baseline price? The process of determining the baseline would be likely to be highly arbitrary, and therefore open to frequent challenge. The Government would have a constant incentive to set the baseline higher, and motorists and other organisations would call for it to be lower, because that would have an effect on whether prices went up or down. Last summer, the Opposition appeared to suggest that the Budget forecast should be used as a baseline, but as is well known, oil prices can be volatile and difficult to predict. I suspect that if the Conservative party had predicted oil prices, and had known what was to come, it would not have released its press release and developed its so-called fuel duty stabiliser. It is certainly indisputable that in recent years, forecasts of the price of oil have been subject to wide margins of error. In Budget 2008, the average of independent forecasts, which is what we use for the Red Book, was just below $84 a barrel, yet within four months of last year's Budget, oil prices had reached a record peak of just over $146 a barrel. Another four months later, by the time of the 2008 pre-Budget report, oil prices had fallen by more than 60 per cent. to below $50 a barrel. After further fluctuations in the first few months of this year, on Budget day 2009, the Brent crude price closed at $49.81 a barrel. According to information from the Conservatives outlining the policy for their so-called stabiliser mechanism, a $6 per barrel shift in the crude oil price would result in a 1p per litre adjustment to the fuel duty rate, yet as my right hon. Friend the Chief Secretary pointed out on the subject last year—she is here, listening to the debate with great interest—crude oil prices frequently moved by more than $6 a barrel in a single day. In the past year, the oil price moved by more than $12 a barrel on five occasions in the course of a week. Instead of a change being triggered by a $6 difference in the oil price, one could, I suppose, adjust fuel duty at certain set points throughout the year, as the Conservatives originally suggested, but there would then be a significant risk of a market distortion. If the crude oil price were to be regularly compared against the baseline price, it could offer oil traders incentives to bid up the oil price before each assessment date, in the hope of artificially engineering a lower fuel duty rate. Gaming takes place when there are such things to predict and bet against, as I am sure the hon. Member for South-West Hertfordshire (Mr. Gauke) knows. Speculation that the duty rate was about to change as the assessment date approached could encourage forestalling activity to avoid duty, producing yet further instability. Overall, frequently changing the rate could impose significant additional administrative burdens on fuel producers.