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Fuel Duty (Rural Areas)

We would still have to ask the EU Commission for that derogation, and some of the islands represented here today would not be included. I do not want something that is perceived to be unfairness across the country to become an unfairness between remote areas. There is a wide variety of fuel prices throughout the UK, not just in Scotland. For example, the current UK average petrol price is around 111.8p a litre, and AA figures show that in Scotland as a whole, both petrol and diesel prices were 0.7p a litre below that average in January. Even in the highlands and islands of Scotland, different fuel price trends are not confined to neatly definable geographical areas, and prices fluctuate continually. Even within rural areas, prices are neither straightforward nor static. Figures from the Petrolprices.com website show that in some highland areas, average fuel prices are currently at or just above the UK average, whereas in others, fuel prices are more than 10p a litre higher. I recognise that in some of the most remote islands, prices may be significantly higher—for example, more than 123p a litre in Stornoway on the Isle of Lewis, Lerwick on Shetland and Brodick on Arran. However, in Portree on Skye, the price is 117p a litre, and in towns such as Invergarry in the highlands the price is 114.4p a litre. Many hon. Members have spoken about competition, and mentioned the investigation by the Office of Fair Trading. Previous investigations concluded that those variations result from market conditions—for example, the cost of transporting fuel to those areas, and the fact that smaller populations mean fewer filling stations—rather than market failures. There may be a case for the OFT to investigate the matter again, but it is an independent body. With different price trends throughout the highlands, defining the boundaries of a low-duty area and setting the level of a duty reduction would be complicated. The hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) said that one option might be to use the eightfold urban-rural classification produced by the Scottish Government. That identifies areas with a population of fewer than 3,000 and more than a 60-minute drive from a settlement with a population of 10,000 as being ““very remote””, but that criterion produces a region with highly irregular borders, and includes not just parts of the highlands and islands, but small pockets of the lowlands in the south-west. Those lowland areas, in Ayrshire, and Dumfries and Galloway do not seem to experience significantly above-average fuel prices. In addition, the eightfold classification would exclude the towns of Lerwick on Shetland, Kirkwall on Orkney and Stornoway on Lewis, which are all considered to be too urban to fall into the ““very remote”” category. Even if we could modify the definition to exclude the lowlands and include all the islands, there would be problems due to the wide variety of fuel prices in remote areas. Prices vary even within islands, so any fuel duty discount might end up reducing some prices to below the UK average, while leaving others significantly above. The very remote region also includes some areas that are close to places where fuel prices are currently close to, or even below, UK averages. For example, the borders of the ““very remote”” region pass within 5 miles of Fort William, where current prices are only 1.1p a litre above the UK average, and within 5 miles of Oban, where current prices are only 2.1p a litre above the average. A lower duty rate could offer incentives for new filling stations to be set up just over the border of the remote areas, where they might be able to undercut rivals in towns just a few miles away. That would distort the local fuel market, and encourage people to drive out of town to a low-duty filling station to fill up. The introduction of lower duty rates in some areas would also create difficulties in ensuring compliance, and tackling the risks of fraud that would inevitably arise from having different duty rates on the same product. Fuel duty is currently collected by Her Majesty's Revenue and Customs at the point of distribution—the oil refineries—with the cost being passed to retailers, and by retailers to consumers. Creating a reduced rate in remote areas might require HMRC to distinguish between fuels at the refinery, but that would risk creating significant potential for fraud, as has been the case with the red diesel used by farmers and in industrial processes.