I beg to move, That the clause be read a Second time.

With this it will be convenient to discuss new clause 18—Tax simplification—

‘(1) The Treasury shall publish each year, not later than the Pre-Budget Report, its proposals for the simplification of the tax code of the United Kingdom.

(2) A copy of the proposals must be laid before the House of Commons.

(3) Standing orders may make provision for the scrutiny of the proposals.’.

New clauses 17 and 18 are what I might describe as specimen clauses, and deal with simplification and transparency in the tax system. Our intention is to have a debate and to get a response from those on the Treasury Bench on the crucial issues of simplicity and transparency in our tax system. New clauses 17 and 18 allow us to do that, by focusing on two aspects of that wider agenda.

It is perhaps worth noting—I am sure that Government Members will have spotted this already—that new clause 17 replicates proposal 37 of the report of the tax reform commission, which was set up my hon. Friend the shadow Chancellor and is ably chaired by the noble Lord Forsyth.

Will the hon. Gentleman update the House on the intention of his Front-Bench team to adopt all the proposals put forward by Lord Forsyth’s commission? I remember that Lord Forsyth recently described the Conservatives’ current tax proposals as “mad”. A gap appears to have opened up between the hon. Gentleman’s position and that of the chairman of the commission.

If I were to choose a word to describe the report produced by my noble Friend, it would not be “mad”. I would describe it as “extremely interesting and very helpful”. Some of the proposals are clearly ones that we will wish to adopt. Others might fall into the category of things that we would love to adopt while recognising that we would be unable to do so because of the mess that the public finances are in and the chaos that we are likely to inherit. It is also fair to say that other proposals do not resonate with my colleagues on the Front Bench.

We do not need to be coy about this. The job of a party in opposition aspiring to government is to do the work. That involves asking people—including experts and outsiders—to look at issues and to report on them. If we were to create an environment in which, every time the Government or the Opposition asked a third-party organisation or outside body to look at an issue and put forward proposals, our political opponents were able to present those proposals as though they were adopted policy, we would simply shut down the debate. I urge the hon. Gentleman not to go down that route.

I strongly agree with the point that the hon. Gentleman has just made; such an approach would discredit the wider political process. I remember, however, on that same line of inquiry, that the shadow Chancellor said that he would support a flat-rate tax. In fact, he cited examples in eastern Europe that we should learn from. I presume that that is the kind of imaginative thinking that the hon. Gentleman is talking about. Can he tell us what progress has been made in that regard?

If the hon. Gentleman looks carefully at what my hon. Friend the shadow Chancellor has said, he will see that my hon. Friend supported a flatter and simpler tax system. He has always recognised—as, I think, do all hon. Members on both sides of the House—that a flat-tax system that might be attractive in an economy that is in the early stages of development and that has, in particular, an undeveloped system of tax collection, would not be appropriate in a mature tax jurisdiction such as ours. It is important that we look at all these issues, however, and that we are able to do so with no holds barred.

Many people to whom we speak, including those with an intimate knowledge of how government works, and including some who were sitting on the Treasury Bench only a couple of years ago—[Interruption.] No, I said a couple of years ago, not a decade ago. Those people tell us repeatedly that there is little opportunity for strategic thinking in government. That strategic thinking needs to be done while in opposition, and a party needs to come to government with a clear idea of where it is going. If we are fortunate enough to be elected to government, we certainly intend not to repeat the mistakes of Mr. Anthony Blair, who knew a lot about getting elected, but not a lot about what he wanted to do when he got there.

Mr. Speaker, I am sure that you would like me to return to the subject of the debate. The commission looked at many aspects of our tax system, including matters of process. In scrutinising the Bill so far, our attention has rightly been focused primarily on the substance of the individual measures in it. Now, however, it is appropriate to pause to consider the processes by which we make and manage our tax law.

There is a long-term driver and a short-term driver to this agenda. Over the past decade, the tax system has—partly by design—been made much more complicated. In our submission, it is now in urgent need of simplification. Public confidence in it has been undermined by the endless stream of stealth taxes, which began with the great pensions raid at the beginning of this Labour Government, when none of us knew about stealth taxes. We had not heard the term before; indeed, it had not even been coined. It was some time before people understood the fiscal implications of what was being done. This has continued right up to the proposals announced in this year’s Budget for a retrospective increase in taxation on cars purchased before 2006, about which we will hear more—perhaps a great deal more—later this afternoon.

Over the same period, it has become clear that the vast weight of new tax legislation has simply overwhelmed the capacity of Parliament effectively to scrutinise it. That is the long-term driver. The more immediate driver and what has focused our attention rather urgently on this issue is the fiasco of last year’s pre-Budget report and the elements of Budget 2007 that are enacted in the current Finance Bill.

The Chancellor’s proposals—when I refer to his “proposals”, I do so in the loosest sense to mean what he stood up and announced in the pre-Budget report—on the taxation of non-domiciled residents and on the abolition of taper relief provoked a furious reaction from the business community. I am sure that all hon. Members will remember the fierceness of the response and the unity of purpose across a group of business organisations that, quite frankly, do not often sing from the same hymn sheet. On this issue, they were united, partly on the substance of the proposals, but significantly on the manner of their introduction on account of the total absence of advanced signalling and of consultation with interested parties.

Does the hon. Gentleman agree that his case, which I agree with, is further strengthened by noting the number of Government amendments to their own legislation that are to be debated later? They follow dozens of amendments on the same section of the Bill. Would it not have been better if the Government had engaged in processes of thought and deliberation before making their announcements rather than during the legislative process?

The hon. Gentleman is right. He is making a slightly different point about a different part of the tax legislation process, which I will also address in due course.

The Chancellor was eventually forced into humiliating climbdowns on both issues, as well as subsequently having to kick his ill-thought-out, unworkable and highly damaging proposals on the taxation of foreign profits and on income splitting into the long grass—and, presumably, the grass must be long enough to get him to the other side of a general election. All those issues affect businesses. The saga of the 10p tax rate does not affect businesses directly, but is yet another example of poor scrutiny and poor process. I am sure that Government Members would say amen to that. They must realise more than most how desperately important it is not to repeat the type of mistakes made with the abolition of the starting rate of tax. It was not only a bad measure in principle, as it was badly explained, poorly understood, deferred in implementation for all the wrong reasons and then reversed—or at least mitigated—in a way that has further undermined confidence in the stability and structure of our tax legislation system.

Although the measure was announced in 2007 and immediately identified as a potential problem, it was the failure to grasp the scale of the problem among those who later became concerned about it that has been so highly damaging to the Government. Although it is not my job to worry about the damage that the Government seek to inflict on themselves, it is instructive to note that this not particularly complex piece of tax legislation impacted negatively on 5.3 million ordinary people—whom we often think of as voters—rather than businesses, yet it still took the best part of a year before the debate on the issues really got going. I am trying to make a serious point, as this indicates the failure of the House’s mechanisms for scrutinising tax legislation. We need to ensure that such legislation is understood, if not by every hon. Member, but by a wide enough audience so that any serious political problems can be identified at the earliest possible stage.

To return to the issues of non-doms and capital gains tax changes announced in the pre-Budget report, the Chancellor’s U-turns, which I have already mentioned, were not very neatly executed. Immediately after the pre-Budget report, No. 10 began briefing that there might be concessions on capital gains tax. What happened is that the Prime Minister was taken aback by the scale and ferocity of the business response and saw his laboriously constructed base of business support—not to mention business donors—evaporating overnight. He responded accordingly by kicking the man next door. The concessions dribbled out over the following weeks and months, but in a way that meant businesses, and particularly those entrepreneurs considering a sale of a business in the near term, did not know where they stood until as recently as early March.

I remember meeting groups of entrepreneurs and small business owners back in late October or November after the announcement had been made. There seemed to be an even split between, on the one hand, those who felt that the only safe route was to gain the benefit of the taper relief by cutting and running and trying to sell their businesses even as the economy was slowing down against the backdrop of the credit crunch, which made the financing of business acquisitions quite challenging, and, on the other, those who put their faith in the trickle of news from sources in the Treasury indicating that concessions would be made. It was a very destabilising situation.

The hon. Gentleman mentioned that there was clarity by March, but any such clarity over capital gains tax applied only to the easy things, like selling a business that one might have sold anyway. He will be aware—I suspect that this is part of the reason for his new clause 17—that it emerged in Committee that share option schemes, approved or otherwise, in respect of the CGT changes looked like treacle and there was no clarity at all. Will he turn his mind back to the share option debate we had upstairs in Committee as an exemplar of why we need new clause 17 or something similar to it?

The hon. Gentleman is exactly right, but I do not want to pre-empt our debate on the next group of amendments.

I do not deny that I have made some partisan points so far, but I hope that everyone will recognise that there is a genuine problem. I shall address it in more detail in a few moments, but the real problem is our capacity as parliamentarians to deal with vast volumes of complex and technical legislation. Of crucial importance is the Government’s capacity, against what is a pretty tightly constrained timetable in respect of the Finance Bill, to deal with the many technical issues that need to be clarified between the headline announcements in a Budget speech and the passage of the legislation on to the statute book. It goes beyond that because, in addition to the capital gains tax changes, a raft of guidance has to be published, understood and commented on. As we shall see when we debate the next group of amendments, the guidance can sometimes be critical in debating the detail of legislation. Clearly, we need a new and more effective mechanism for the scrutiny of our tax legislation.

As with CGT, the Government’s original proposals for non-doms soon disintegrated as item after item on the Revenue’s shopping list was scrapped as the political masters of the process finally grasped the scale of the damage that risked being inflicted and the extent to which they had lost control of the process to their own bureaucrats. I do not expect the Economic Secretary to answer this point, but it is pretty clear to us that the problem with the non-dom legislation was due to what is known in this place as gold-plating.

The usual example is the European Union handing down a directive. In this instance, the Chancellor made a decision on the taxation of non-doms, and then handed it to British civil servants whose natural instinct is to reach for the nearest kitchen sink and try to bolt it on to the original decision. I have an image of officials of Her Majesty’s Revenue and Customs going to filing cabinets that may have been left untouched for years, dusting off packets of documents containing various wish lists of ideas for taxing non-domiciled residents, and bolting them on to the original idea that the Chancellor and his team presented, in a way that not only made the legislation complex but—and I suspect that this is something that a politician might see more readily than a civil servant—caused it to send a very negative set of signals that would be extremely damaging.

May I suggest to my hon. Friend that the threat in respect of corporate tax rates comes not only from emerging markets? British companies are moving to other European Union countries—Shire Pharmaceuticals is one such suggested company—with lower tax thresholds. That directly threatens job prospects in this country. The threat, therefore, comes not only from emerging markets because tax base comparisons across the EU are also relevant.

My hon. Friend is absolutely right. He may have been involved in similar discussions to those that I have with many FTSE 500 companies. Most of them have not taken the decision to relocate their tax domicile, but many—perhaps most—of them feel that they are obliged, in the interests of their shareholders, to investigate the options available to them. Just a few months ago I was told by one of the leading firms of accountants that without exception every one of its FTSE 100 clients had asked it for a report on the alternative tax domicile options available to them, because they are conscious that while managements might have preferences—management may prefer to live in leafy parts of the home counties, or play golf on certain courses, or enjoy the cultural attractions of London—increasingly investors, who are global institutions, are asserting their right to have their interests held paramount in the decisions that corporations make. We have to be conscious of that. I hope—in fact I am sure—that the Economic Secretary is conscious every waking hour that corporations, driven by global investors who have no sentiment whatever about domicile, look at these issues in a cold, hard light, and look to locate to the place that offers them the lowest tax rates and the greatest overall advantages.

After a decade of Labour government, Britain is a less attractive place to do business than it was, because business taxes are too high and our tax system is too complicated. Thanks to this Government, we now have the longest tax code of any major economy—we overtook India with the Finance Act 2007—and it is expanding the fastest, with the Government, increasingly buffeted by events, endlessly changing and complicating the system in response to short-term political events and budgetary pressures. Unfortunately, the objective of a simpler, fairer, more competitive tax system has been sacrificed to the Treasury’s insatiable hunger for cash and unquenchable instinct to micro-manage. Announcement after announcement has been billed as a simplification or as being in the interests of fairness, but turn out to be nothing more than a crude tax grab. Time after time, the rhetoric of the Budget speech is at odds with the reality revealed by even a cursory analysis of the small print of the Budget documentation. We have had many examples of tax initiatives that start life under the green banner—they are introduced under the pretence of being green taxes—but which on closer inspection are simply revenue-raising measures. They discredit taxpayers’ notion of green taxes. On top of all that, there is also, of course, the endless stream of stealth taxes. That phrase did not exist 11 years ago, but it has now passed into everyday language and can be found printed almost every day of the week in one newspaper or another.

There is no sense of strategy or direction. The long-term objective to introduce a 10p starting rate of tax was abandoned for short-term political advantage. Sending a clear signal to business that enterprise will be rewarded through a dedicated lower rate of capital gains tax was also dumped. Both were scrapped without a word of explanation or advance warning. After five or six years of dithering on non-doms, with the problem conveniently lobbed into the long grass, and uncertainty pervading, there was a bungled legislative proposal. Now, there is more uncertainty on income splitting and foreign profits as the Government duck those difficult decisions.

Uncertainty and complexity both impose a burden on business just as surely as do taxes themselves, but at least taxes benefit the Treasury. Uncertainty and complexity reduce UK competitiveness, increase the costs of managing the tax system and offer absolutely no offsetting benefits at all, unless we consider the employment of accountants to be an offsetting benefit.

So what is to be done? To help us to answer that question, the shadow Chancellor set up a tax reform commission, which reported at the end of 2006. Following on from that work, he established a working party, led by Lord Howe of Aberavon, a former distinguished Chancellor of the Exchequer, to take forward the tax recommendations that the commission made in the narrow area of reform of the making of tax law. There are five key issues. First, we need to improve the clarity and transparency of the process of tax law making. Secondly, we need to introduce clear advance signposting of the direction of future changes, especially in business taxation, so that businesses can prepare and the behaviour-influencing capacity of the tax system is maximised.

Thirdly, we need to restore proper parliamentary scrutiny of tax legislation proposals. Fourthly, we need to institutionalise a simplification agenda, to try to ensure that the process of reducing the complexity and length of Britain’s tax code is not dependent on the whim of individual incumbents of the Treasury Bench, but is built into the system. I am not talking about rewriting law just to make it read more easily or to improve the cross-referencing, but about a substantive simplification. Finally, we need to focus on certainty, because that is the No. 1, No. 2 and No. 3 demand of business. Of course businesses would like tax to be lower, regulation to be lessened and the system to be simplified, but anyone who has ever talked to them about the issue will know that above all they want a system that is stable and predictable. They might like to see significant changes to make the system simpler, but I am sure that they would prefer a guarantee that there will be no changes to the system to make it predictable, because that is their No. 1 demand.

New clause 17 addresses the issue of transparency of process, which is so important to delivering this agenda. Britain is fortunate in that it already has a two-stage budgeting process, which, if it were used sensibly, would offer the opportunity to bring a degree of stability and certainty into the tax law-making system. The pre-Budget report can be used to signal the intentions for the following Budget and new clause 17 would require that all technical changes to tax legislation were published at the time of the pre-Budget report. It would also make provision for Standing Orders to deal with the question of how such technical changes should be scrutinised ahead of the Budget.

The Chairman of the Treasury Committee, during the course of yesterday’s debate, made an impassioned plea to the Financial Secretary for discipline in the way that the pre-Budget report and Budget statements are used. It was a plea for a reversion to the proper purpose of those two reports—and incidentally an implicit plea to the Government not to be tempted down the road of ad hoc tax changes outside the proper structures, as they have been in the face of political pressure and under the weight of their own errors in the abolition of the 10p tax band this year. We on the Conservative Benches endorse that call by the Chairman and, when Lord Howe’s report is published tomorrow, he will go further in setting out his views on how to improve the presentation, scrutiny and delivery of our tax law.

We also need clarity of future intentions. Business decisions are made not so much on current tax rates, but on the basis of known future tax rates. Investment returns depend on the tax regime that an investment will face at the point when it matures and begins to produce profits. Clear signalling can be a positive support for investment and a major influence on behaviour, not only removing the negative of uncertainty, but introducing an advance awareness of intended business-favourable changes, thus stimulating the very supply-side response that such changes are almost always designed to achieve.

The third aspect is scrutiny. Nobody who has ever sat on a Finance Bill Committee, or wandered inadvertently into a Finance Bill Report stage debate, will doubt that the mechanism we have for detailed scrutiny of what is often highly complex and technical legislation is inadequate. To be blunt—and I hope that the Financial Secretary will not mind if I say this—Ministers, who are not tax experts or even accountants, stand in front of a Committee and read out a brief whose technical implications they may not fully understand. Members of the Committee ask questions —often fed in by experts—of which, to be honest, they may have only a limited understanding.

rose—

I hope that the hon. Gentleman does not intend to make some petty party political point.

I never make petty party political points—only wise observations. I agree with the hon. Gentleman’s observations, but I would caution against saying that only education experts know about education legislation, or only health experts know about health legislation, or only military experts know enough about defence legislation. That would mean that politicians were redundant, but we have an important role in deciding priorities and making real choices. The issue is not only expertise, because there is a political aspect to the process.

The hon. Gentleman makes a good point and he prompts me to draw that distinction. I did say earlier in my speech that I thought that what had gone wrong with the non-doms legislation was that the basic idea from the politicians had been hijacked by the civil servants and burdened with various bolt-on goodies to the extent that political common sense then told the politicians that it would not fly. We need to have a sensible and serious debate that distinguishes between the strategic policy decisions that have to be made and the scrutiny of detailed, technical legislation. For example, the hon. Member for Aberdeen—

Dundee, East.

They are quite close—[Interruption.] They are on the same side of the country at least. The hon. Gentleman and I had a discussion earlier about employee share incentives. The principle is clear, and it is eminently capable of being debated and decided by politicians, but if anybody thought that the resulting legislation was clear, they need only look at schedule 3. The technical wording needed to achieve what the politicians decree is immensely complex. We need to draw a distinction between the policy principles that politicians can—and must in a democratically accountable society—make, and the technical implementation of those principles, which is the stuff of experts.

May I give the hon. Gentleman a better example? The 10p tax change may have implications for the 10p tax on savings income, and for the 10p rate on dividend income, which goes up to the basic allowance threshold. That appears in two or three tiny bullet points in an obscure table in the Budget book and does not even form part of the detailed Bill that we are scrutinising. That makes it all the more difficult to understand the implications for savings tax and dividend tax of the 10p tax change.

The hon. Gentleman is right. I am sure that we could find hundreds, if not thousands, more examples in the Bill.

I do not intend to criticise anyone, and I should place on record that the Treasury Ministers who took part in Committee did an excellent job. They were well briefed and they answered questions as helpfully as they were able. I am sure, in the spirit of candour, that they would equally want to acknowledge that, in Committee, if I pulled from my pocket a question from a senior tax partner in a large firm of accountants, it occasionally caught them on the hop. I ask myself whether that is the most constructive way in which to scrutinise tax legislation.

It is a privilege to follow what felt like a Reithian lecture, certainly in its length and to some extent in its content. I agreed with large parts of what the hon. Member for Runnymede and Weybridge (Mr. Hammond) said, some of which was not particularly partisan and may even assist the House in its future deliberations. There were other parts about which I had some reservations, but should the Conservatives choose to press either new clause 17 or new clause 18 to a Division, my party will support them. The former would require the Government to report annually on the technical tax content of each Finance Bill, and the latter would require annual reporting on how the Government intended to simplify taxation.

We have already had quite a lengthy debate, if I can call it that, and I shall not speak for long because I know that others wish to dwell on other matters later. I wish to make a couple of brief points to follow those made by the hon. Gentleman. First, there is virtue in simplification. A lot of people are intimidated by the tax system—certainly if they are trying to file their own tax return, but even if they are using accountants to help them. There is merit in simplicity, and one of the problems has been that when the Government have tried to target tax breaks on different sections of the economy or categories of individual, they have introduced excessive complexity. Even when they have made a virtue of simplification, as they have sought to do in recent Budget statements, they have then had to unpick that simplification to rectify political controversies. Nevertheless, there is virtue in pursuing simplification as an objective.

I must defend my noble Friend Lord Howe. I do not know how old the hon. Gentleman was back in 1979, but I suspect that he was not much focused on VAT. There was a deliberate and conscious shift from direct to indirect taxes, but that had to be done because the top marginal rate of direct income tax was 98 per cent. It was not done in a stealthy way, and I assure the hon. Gentleman that it was not unnoticed by the population.

I take the hon. Gentleman’s point, and I was not preoccupied with VAT in 1979, mercifully. Oddly, here we are 29 years later and I am still paying the VAT that the Conservatives introduced every time I buy something that is not exempt from it. To be fair, the hon. Gentleman might have been talking to one of his hon. Friends when I said that Lord Lamont used an increase in VAT to fund a reduction in council tax. It is fair to say, and everyone will acknowledge, that he was trying to reduce an unpopular tax by increasing one that was less visible to the public. I am not making a particularly major point, just saying in passing that the desire to tax people in the way that they are least likely to notice is not unique to Labour Governments. It has been a feature of Governments of all parties.

The hon. Gentleman made some interesting comments about the process of scrutiny of Finance Bills. It is certainly true—any Member who does not acknowledge this is either a tax expert or not being entirely frank—that some of the deliberations that we are asked to undertake would more appropriately be resolved by people with expertise in the matter. A greater role can definitely be played by people beyond this Chamber who can add their expertise. My only cautionary note, as I said in an intervention on him, is that I am always guarded about people thinking that all tax matters can be resolved by “experts”. I know that he acknowledged that point. One tends to find that experts come up with all kinds of solutions, but often their cumulative solutions do not add up to an overall solution that the public find as agreeable as they would expect if they asked the experts to usurp the role of the politicians, about whom they are less confident but who can weigh up the solutions.

Anyone who has led a council will know that some officials are adept at proposing strings of savings and economies to keep down council tax, but that a politician’s eye is needed to spot which recommendations are likely to be popular and which will cause a party to lose control of the authority. The same is true of national Government: there will always be a political aspect to the process, regardless of how many experts are deployed.

Given the length of the speech made by the hon. Member for Runnymede and Weybridge, it was unlikely that he would not touch on my final point, but it has become especially topical in the past day—or even year—or two. The Treasury Select Committee has said that the current Prime Minister liked to pull rabbits out of the hat when he was Chancellor. No one is going to accuse the present Chancellor of displaying similar showman-like qualities, but his predecessor was keen to do so in his Budgets.

When the PBR was introduced as part of the annual set of major Government announcements in this House, we assumed that its purpose was to inform the main Budget. Instead, it has become a sort of secondary, lower-status Budget in its own right. It can be used to introduce tax changes, but the element of consultation is far less of a feature than many wanted it to be.

Ironically, the consequences have been bad for the Government. The current Prime Minister introduced the PBR, but he has been the one most damaged by his tactics in the House. The abolition of the 10p tax rate is one example, but others include the inheritance tax scheme—and there are not many hon. Members who do not think that was rushed through for party political reasons, with inadequate deliberation—and the proposals for non-doms and capital gains tax. Later this afternoon, we will talk about the retrospective element of vehicle excise duty, which is yet another policy of whose dangers the Government and Labour Back Benchers seem to have become aware only after it was announced. It would have been in their interests to consider all those matters in greater detail beforehand.

For all those reasons, new clauses 17 and 18 have merit. This discussion has been interesting and wide ranging, and we look forward to hearing the Minister’s response.

This has been a wide-ranging and useful debate. I congratulate the hon. Member for Runnymede and Weybridge (Mr. Hammond) on speaking for exactly an hour, although my experience in the Finance Bill Committee tells me that he has managed the feat before. My congratulations also go to the hon. Member for Taunton (Mr. Browne), on not matching that record.

In the interests of making progress, I shall not touch on all the topics that have been raised, my excuse being that some will be discussed in connection with later groups of amendments. New clauses 17 and 18 propose that the Treasury publish each year, not later than the PBR, a report containing information about the technical content of any tax changes, aside from rate changes, that it proposes to include in the following year’s Finance Bill, as well as its proposals for the simplification of the UK’s tax code.

The Government use the PBR and the Budget to set out decisions on the tax system. We are committed to a fair and efficient tax system that supports business, individuals and sound public finances. We are also clear about the process: in the Finance Act 1998, we set it out in the code for fiscal stability that the PBR should be consultative in nature and include, so far as reasonably practicable, proposals for any significant changes in fiscal policy under consideration for introduction in the Budget.

We made it clear that the PBR was not to be taken as an indication of all tax policy areas in which the Government might choose to act. The policy has been supported by the conclusions of a recent investigation by the Treasury Committee, and it was not opposed by Opposition parties when voted on during deliberations on the 1998 Act.

The theory sounds credible, but the announcement about non-doms, for example, was made as a set of final policy proposals in the PBR, and the lack of detail invited people to speculate about how the policy would impact on them. This Chamber is not always the best place for a constructive debate, given the party political sensitivities involved, but many of the concerns that most upset the people who would be affected turned out to be less serious than was at first thought. The lack of technical detail caused people to speculate, and in many cases they assumed the worst. That was how the damage was done.

We shall deal with the non-doms issue later, and my right hon. Friend the Financial Secretary to the Treasury will no doubt comment in detail on the entire process, but it was precisely by introducing our proposals in the PBR that we allowed time for work with stakeholders to make sure that we got the matter right.

The code also sets out that publication or consultation on all tax changes—background tax issues as well as rates—before their introduction carries significant risks. The Opposition accepted that when the matter was debated in the House, and those risks include the possibility of significant forestalling activity by existing or prospective taxpayers that could result in a damaging impact on public finances. That activity could also lead to significant temporary disruptions to the behaviour of taxpayers and markets, and to wider disruption in financial markets.

The publication of a report containing information about the technical content of any non-rate tax changes proposed for inclusion in the following year’s Finance Bill would have significant risks, as I have just mentioned. It would also prevent the Government from taking action to address any avoidance or evasion activity arising between the PBR and the Budget that could have further significant ramifications for tax revenue and therefore a negative impact on public finances. The general point—that the Government should consult through the PBR, where possible, and then implement proposals in the Budget—is correct, but new clause 17 would be unduly restrictive and against the national interest.

That is not to say that we do not want to consult at all. Quite the opposite: we currently have 29 consultative tax groups routinely working through HMRC. We are consulting far more than in previous years, and I hope that Opposition Members agree that that is a good thing. We had 38 formal consultations last year, and 80 per cent. were for the full 12 weeks. Consultation is definitely a good thing, and we want to do as much as possible, but new clause 17 would constrain us in a damaging way.

I turn now to new clause 18. Simplification is of course a stated priority when designing and reviewing tax policy, alongside having sound public finances and fairness. After work with business and tax professionals, there is already a significant rolling programme of tax simplification in place, and the Government continue to use PBRs and Budgets to simplify the tax system wherever they can.

The hon. Member for Runnymede and Weybridge is quite wrong to say that the length of the tax guide indicates how complicated the tax system is. We want to ensure that our legislation is accessible and simple to users, which can involve increasing its length. [Interruption.] I will give the right hon. Member for Wokingham (Mr. Redwood) a specific example: the tax law rewrite project, which is a good example of a consultative, collaborative project and has been widely welcomed by industry, has increased the physical length of legislation but successfully simplified it and improved its clarity for legislators, tax professionals and the public. For example, 150 pages of this year’s Finance Bill will simplify and modernise the tax system. So the hon. Member for Runnymede and Weybridge makes a slightly incongruous point.

I have listened to the Economic Secretary, and I am afraid that I will disappoint her. She says that the Government have 29 consultative tax groups and that they have had 38 formal consultations. One is tempted to wonder how they got it all so wrong if they have so much consultation going on and so many experts apparently at their disposal. The experts whom we talked to knew that it would all go wrong. They knew about the non-doms thing and that the capital gains tax regime needed to be amended. They saw the problems with the 10p tax changes. They understood that the proposed income-splitting rules were unworkable and that the foreign profits consultation could have led to something that was disastrous for Britain. Indeed, we have already begun to see the early effects, with the exit of one or two key companies from this country, as mentioned by my hon. Friend the Member for Billericay (Mr. Baron).

The Economic Secretary said that simplification was a priority for the Government and that a significant rolling programme of simplification was in place. We understand how easy it is for Ministers to be briefed by civil servants and to read out what they are told, but as we now have the longest tax code in the world, and given the complexity of our tax code, does she really believe that an effective simplification programme is in place? She says that longer means simpler and easier to access. I wonder whether the Treasury has bought a share stake in Tolley’s tax guide; I can think of no other reason for her to believe that statement. I urge my right hon. and hon. Friends and right-thinking Members in all parts of the House to vote in favour of new clause 17.

Question put, That the clause be read a Second time—

I beg to move amendment No. 89, in schedule 3, page 127, line 5, leave out ‘B,’.

With this it will be convenient to discuss the following amendments: No. 90, in schedule 3, page 127, leave out lines 12 to 16.

No. 91, page 127, leave out lines 23 to 25.

No. 93, page 128, line 1, at beginning insert

‘In respect of qualifying business disposals within section 169H(2)(a) and (b),’.

No. 92, page 130, leave out lines 31 to 36 and insert—

‘(a) that during the period of ownership of the individual or from 6 April 2008 if later—

(i) the assets which (or interests in which) are disposed of have not been in use for the purposes of the business throughout that entire period, and

(ii) only part of the assets which (or interest in which) are disposed of are in use for the purposes of the business,’.

No. 88, page 133, line 21, at end insert—

‘4A For paragraph 15 of Schedule 7D (taper relief on disposal of qualifying shares) substitute—

“15 For the purposes of claiming entrepreneurs’ relief on a disposal of qualifying shares, in applying sections 169I and 169S(3) the shares are treated as if they had been acquired when the original option was granted.”’.

Government amendment No. 29

This is a technical but important group of amendments relating to the detail of entrepreneurs’ relief. The abolition of taper relief in the capital gains tax changes that were announced in the pre-Budget report sent a very negative signal to business and, as I said in the previous debate, provoked a ferocious response from business organisations. Indeed, it created what I think is a unique coalition of all the business organisations: the CBI, the EEF, the British Chambers of Commerce and the Federation of Small Businesses. I apologise to any others that I have missed, but they all coalesced in an unusual way—perhaps not surprisingly, given that they represent disparate types of business. Faced with that wall of opposition, the Government’s tactics were, to put it bluntly, opportunistic. They decided to try to buy off the most numerous but least expensive group of opponents. I am thinking of very small businesses, which are largely represented by the Federation of Small Businesses.

Let me be unambiguous: small businesses play a crucial role in our economy. Businesses that employ no one other than the principals or one or two people deliver a major part of the economic activity in our economy. Beyond that, small businesses play a crucial part in the social fabric of our society, and we support them entirely. However, the great majority of them are not going to—indeed, have no aspiration to—grow into large businesses. Many people establish small businesses as an alternative to other employment; running a small business gives them a different lifestyle and working style and the opportunity to succeed in a way that suits them.

Some people, of course, want their businesses to become the next Microsoft, but many do not want that. For the economic future of the country, we do not need only small businesses, which provide the bedrock of our economy; we also need to foster small but scaleable businesses—those that have aspirations to grow, create substantial employment and raise ever larger amounts of capital. We need to be concerned about those businesses because of their importance in creating jobs and prosperity and because the entrepreneurs who establish them—such businesses are often in high-tech industries—tend to be more mobile, so the option of relocating overseas tends to be more realistic for them.

When this debate first broke, I met a group of serial entrepreneurs. They had established successive businesses, built them up, sold them on and then started again. Some of them were quite young—in their 30s or early 40s—but already had a chain of business successes behind them. We have to encourage such people if we are to have a future in the globalising economy.

I cannot remember the precise statistic, but a staggering proportion of our largest companies—40 per cent. of the top 100, I think, although one of my hon. Friends may correct me—were not among the top 100 companies 30-odd years ago. There is a high degree of churn and innovation in the economy and we need those new businesses, which aim to grow and are constantly nurtured, to come through.

The entrepreneurs’ relief—the Government’s solution for buying off the protests of small businesses, the most numerous group—will offer nothing of any significance to the entrepreneurs whom I have mentioned. Clearly, a serial entrepreneur who founds and sells business after business will not find the opportunity of a tax refund on the first £1 million of gain to be a significant incentive. The relief will, however, provide a break for those selling small businesses worth up to £1 million, and that is a welcome concession and U-turn by the Government.

I shall not focus any more on the loss of taper relief, although we could debate its implications. I shall restrict myself instead to the restrictions that the Government have imposed on the entrepreneurs’ relief that they offered in order to buy off opposition among small businesses to the abolition of taper relief. In Committee, concern was expressed by professional bodies and by people who run small businesses and who are likely to be affected. They said that, under the restrictions as they were drafted, some people, who on any equitable analysis looked as if they should get the relief, would be denied it. We had visions of all sorts of apparently perverse outcomes that would bring the measure into disrepute and create significant confusion.

I therefore welcome Government amendment No. 29. I am sorry that the Financial Secretary is not here, but I offer my compliments to the Economic Secretary, who is here in her stead. In Committee, the Financial Secretary pledged to look again at the restriction that would have meant that if rent had been received at any time in respect of any asset that was the subject of an associated disposal, that asset would be ineligible for entrepreneurs’ relief. An associated disposal is the disposal of an asset that is used in conjunction with a business, but is not owned by the business. To take a common model as an example, if a business owner who personally owns the factory building from which his business operates had at any time received rent from his own business for the occupation of that factory, it would not have been eligible for entrepreneurs’ relief when an associated disposal took place alongside the disposal of the underlying business.

In the case of many small businesses, the majority of the value of the global activity may well be in the associated asset, rather than in the business itself. That can be for all sorts of reasons—from security to the need to use mechanisms to raise finance. It is quite common for an asset, particularly a building, to be held in separate ownership. The measure would have been especially harsh for old, established businesses, for which any period of rent payment for such an asset at any time in the past would have led to disqualification of the asset. The measure was likely to have been particularly unfair to businesses such as farming, in which a separation structure is widely used; the people who own the land are often different from those engaged in the business of farming it.

I am glad to say that the Government have taken our suggestion on board and disregarded all periods of ownership before April 2008 during which rent was received. They have therefore removed a potential anomaly that would have given rise to considerable unfairness. I am grateful to the Financial Secretary and the Economic Secretary for listening to the arguments and reconsidering on this occasion.

However, we now have to address other issues. I hope that the Ministers have considered the arguments on those as well; they have not responded in the same way. The Opposition amendments in this group are aimed specifically at achieving clarification from Ministers on these issues, and we hope that we will hear a concise argument on why they are not prepared to accept the amendments. There are no politics in this. It is fair to say that, by and large, this schedule is as dull as ditchwater, but technical clarification is essential. Amendments Nos. 89 to 91 involve a housekeeping exercise that is of wider importance and touches on the debate that we have just had about how we make our tax law. I shall go into more detail on that in a few moments.

The exception to the “dull as ditchwater” label is amendment No. 88, which deals with the treatment of share options under the enterprise management initiative. That initiative was set up by the Government to encourage people working in a business to own shares in it. It was aimed at helping high-tech start-up businesses—as I say, that is exactly the kind of business that we need to foster—in order to attract the kind of people that they need if they are to grow. Those people might come from the academic sector or another business, but typically they could command high salaries and comfortable packages working in other sectors. The scheme was seen as a way of offering them a real financial incentive to take the risk of working in a far less certain and predictable environment.

I remind the House that I have included in the Register of Members’ Interests the fact that I am a director and a shareholder in a small company, but I do not wish to draw on that experience for the purpose of these remarks.

I support what my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) said about the need for the Government to listen carefully to those who say that the new capital gains tax regime is not as supportive of employee shareholding as it could be. I fully accept that the Government were well intentioned in wishing to get the main headline rate of capital gains tax down. I think that everyone in the House, with perhaps a few exceptions, is in agreement that that was a good thing to do. We were becoming very uncompetitive with the headline rate that we had, and it is good that the general rate is being reduced.

However, it is most unfortunate, rather like the unfortunate idea of abolishing the 10p tax band to pay for the welcome lower rate of standard income tax, that in tidying up to try to pay for this measure, some of the rather good reliefs and opportunities that had been offered to entrepreneurs and to employee shareholders by the Government in previous Budgets were swept away, making the regime far less attractive.

If I may draw on a personal experience from my past, I was involved in chairing a company that was financed by private equity where the incentive packages to individuals in the company were most important in driving recovery, profit and success for that investment. My experiences of that model and of talking to others who had been involved in private equity, including constituents of mine, persuaded me that there is a definite correlation between the success of British enterprise and the ability to reward and encourage people at all levels of an organisation with employee shareholdings so that they can participate in that success.

I am therefore pleased that my hon. Friend tabled amendment No. 88, which would adapt schedule 7D so that some of the less generous terms that appear to be reflected in the reform of capital gains tax could be removed. Like him, I think that EMI is a good scheme, and I look forward to hearing the Minister explain how it might rest if his amendment, or something like it, were not introduced during the remaining proceedings on the Bill.

Hon. Members on both sides of the House have come to understand how important small businesses, and smaller businesses led by people who wish them to grow rapidly, are to a successful enterprise economy. The Government’s introduction of the taper relief and the 10 per cent. rate for enterprise undoubtedly gave a considerable fillip to enterprise and meant that a bigger population of smaller companies were able to grow more rapidly with people getting that direct incentive, which was then not going to be taxed at nearly such a penal rate as if the capital gains tax regime had remained unamended.

I am grateful to hon. Members for tabling amendments in these technically complicated areas. It is important to use this stage of the Bill’s passage to ensure that the meaning is entirely clear. I am sure that my right hon. Friend the Financial Secretary would want me to put on record her gratitude for the conversation in Committee that led to our tabling Government amendment No. 29. That was a useful exchange, and we are pleased about that.

Let me run through the amendments in order and give the Government’s response. Amendments Nos. 89 to 91 would make it easier for people to qualify for entrepreneurs’ relief under the rules for so-called associated disposals, which are, as the hon. Member for Runnymede and Weybridge (Mr. Hammond) said, disposals of assets which individuals owned personally but which were used in a business that the individual carried on either in partnership or through their personal trading company. As he said, to qualify as an associated disposal three conditions have to be met. The amendments would remove entirely the condition that the disposal of the associated asset must take place as part and parcel of the individual’s withdrawal from the wider business.

I suspect that that was not sufficiently clear in the guidance, so I will take the opportunity to clarify it now. It is of course draft guidance, so we can revisit it. The disposal mentioned in the guidance is the disposal of the associated assets rather than the withdrawing from the general business. Entrepreneurs’ relief is targeted at disposals of businesses and it is right that there must be a clear link between the individual’s disposal of his interest in the business per se and any disposal of an associated asset that he let the business use. The first condition for relief on an associated disposal is, therefore, that the individual makes a disposal of his interest in the business. The second condition follows naturally from the first condition, and it is that the disposal of the interest in the business and the associated disposal of the asset are exactly that—associated.

The hon. Gentleman says that the second condition is not clear. I do not agree, but it is a useful conversation to have. The condition sets out the factual test that must be satisfied. There must be a link—an association between the withdrawal from the business and the associated disposal of the asset. The House will want to know that the same condition existed in the rules for retirement relief and it did not cause any difficulty in that case.

The hon. Gentleman said that condition B is always satisfied when condition A is satisfied. That is not the case, and perhaps he has misunderstood the guidance in this technical area. Condition B is not otiose. The disposal it refers to is the associated disposal, as I have said, so it is needed to establish the connection between the two disposals. That was the case for the old rules for retirement relief.

The Economic Secretary said that the guidance might be unclear. The guidance is very clear. I wonder whether she means that the wording of the Bill is unclear. The wording of paragraph 3 of proposed new section 169K states:

“Condition B is that the individual makes the disposal as part of the withdrawal of the individual from participation in the business”.

That may be where the ambiguity has crept in. The guidance note, however, is very clear:

“A withdrawal from participation in the business concerned relates to the ‘material disposal of business assets’…That is, it takes place when the individual reduces his or her interest in the assets of the partnership, or their holding in the company”.

Where individuals make a material disposal in the assets of the partnership or the holding of the company, they will be withdrawing from participation in the business by definition.

The disposal referred to in the Bill is the associated disposal, and the definition that the hon. Gentleman read out from the guidance is the definition of the wider withdrawal from the overall business. I think it best that if we need to alter the draft guidance following this discussion, we do so, but I hope that when he has had an opportunity to reflect on this exchange, he will understand our point.

I am grateful to the hon. Gentleman for saying that amendments Nos. 93 and 92 have been dealt with by the Government amendments, so perhaps I can move on to amendment No. 88. This amendment seeks to extend entrepreneurs’ relief to individuals who dispose of shares acquired under enterprise management incentive options before they have held the requisite proportion of shares, and voting rights in the company for shares, for the qualifying period of 12 months.

I was asked whether the Government would take the opportunity to reaffirm our commitment to the enterprise management incentive and to employee share options and share ownership more generally. I would like to take the opportunity to do so 100 per cent. It is often extremely useful to align incentives for the work force with those of the overall organisation, and we have always sought to support that process.

The crucial point is the difference between having the option to acquire a share and the owning of the share itself. Perhaps that will tease out the issue under debate. One of the conditions for entrepreneurs’ relief to be available on a disposal of shares is that the company should have been the individual’s “personal company” for a period of 12 months. A company is an individual’s personal company if that individual holds at least 5 per cent. of the ordinary share capital of the company, and by virtue of that holding can exercise at least 5 per cent. of the voting rights in the company. Amendment No. 88 would make a company an individual’s personal company at the time when he holds EMI options that would entitle him to 5 per cent. of the ordinary share capital, by treating the shares as acquired when he has acquired only the option.

Entrepreneurs’ relief is intended for individuals who have an active stake in the company by owning, throughout a qualifying period of a year, at least 5 per cent. of the ordinary shares, and by being able to exercise at least 5 per cent. of the voting power. Obviously, an option does not require voting power. I think that that is where the difference lies. Someone who holds only an option to acquire shares does not have the sort of stake in the company that should qualify that person for entrepreneurs’ relief. The option does not confer the rights and liabilities of a shareholder, or voting rights, as I have said.

We have heard the Economic Secretary reaffirm the Government’s 100 per cent. commitment to the enterprise management initiative, while stripping away the principal tax advantage of it. What is the incentive for individuals thinking of taking employment with EMI qualifying companies to take up share options? Where is the benefit?

There are wider benefits than simply being able to have a different capital gains tax requirement, such as the way in which the company might be able to develop in future and the simple value of that asset, so that is quite clear. If someone acquires shares by exercising an EMI option and as a result the company becomes his personal company, a gain on a disposal of the shares will of course qualify for entrepreneurs’ relief after he has held them for at least one year, assuming that the other conditions are satisfied. That is the same as for any other shareholder.

People acquiring shares by way of EMI options continue to benefit from generous income tax and national insurance reliefs, which also answers the hon. Gentleman’s point, and we increased the individual limit to £120,000 for EMI options from 6 April this year. There is also a technical defect in the amendment, but I have made my main point, and I urge that the amendment is not pressed to a Division. If so, it should be resisted.

I have alluded to Government amendment No. 29. It relates to the capital gains tax and entrepreneurs’ relief rules for associated disposals. The disposal of an asset may qualify as an “associated disposal” if the asset were in business use and disposed of alongside someone’s withdrawal from a business. In the Public Bill Committee, my right hon. Friend the Financial Secretary, who has joined me on the Front Bench, explained that eligibility for entrepreneurs’ relief may be restricted if the asset was only partly deployed for business use, or if the asset or individual was involved in the business for only part of the period in which the asset was used by the business. Relief may also be restricted if an individual received rent for the use of the asset by the business.

That is a sensible way to focus the relief, as in these circumstances the asset is more akin to an arm’s length investment. The Bill takes all payments of rent into account, even when rent was paid before the new rules were introduced on 6 April. When this particular point was touched on in the Public Bill Committee, my right hon. Friend said that she would consider the case for disregarding rent received before April 2008. We are now persuaded that that is the right approach to adopt, and having examined the matter, we have concluded that it is right to disregard rent paid before entrepreneurs’ relief was introduced, in order to smooth the transition to the new regime. Amendment 29 delivers that change. I would like to move that it be part of the Bill, and I urge colleagues to resist the other amendments if they are pressed to a vote.

I am afraid that the Economic Secretary has not dealt with the issues that amendments Nos. 89, 90 and 91 raise. It may surprise her to know that I did not dream up the problem all on my own. If I doubted my ability to analyse the complex provision, I do not doubt that of others who have pressed the point. I have read and re-read the Bill in the light of the Government’s comments. It states:

“Condition A is that an individual makes a material disposal of business assets”

and

“Condition B is that the individual makes the disposal”—

which the Economic Secretary has clarified as the associated disposal—

“as part of the withdrawal of the individual from participation in the business”.

The guidance notes make it clear that the satisfaction of condition A—that a material disposal of business assets has been made—constitutes a withdrawal of the individual from participation in the business because it necessarily involves the individual reducing his or her interests in the assets of the partnership or their holding in the company. Condition B will therefore be satisfied.

I do not believe that the Economic Secretary has made the case so I wish to place on record our concern that the matter could leave this place unclarified, and there is no other stage of the Bill’s passage when it could be tackled. I therefore urge my hon. Friends to support the amendment.

Question put, That the amendment be made:—

I beg to move, That the clause be read a Second time.

With this it will be convenient to discuss the following:

New clause 7—Vehicle mileage costs—

‘The Treasury shall publish annually alongside the Pre-Budget report an estimate of the average cost of operating a motor vehicle (including associated running costs and depreciation) per mile for a vehicle driving 10,000 miles per year for—

(a) a vehicle registered before 1st March 2001 paying a pre-graduated Vehicle Excise Duty with an engine size 1549cc below;

(b) a vehicle registered before 1st March 2001 paying pre-graduated Vehicle Excise Duty with an engine size above 1549cc; and

(c) a vehicle registered after 1st March 2001 liable to pay graduated Vehicle Excise Duty in each of the VED bands A-M with effect from 1st April 2009.’.

New clause 8—Fuel duties: rates and rebates: general fuel duty regulator—

‘(1) HODA 1979 is amended as follows.

(2) In section 6 (excise duty on hydrocarbon oil) after subsection (1A) (as substituted by section 11 of this Act) insert—

“(1AA) In every Budget Statement and pre-Budget Statement the Chancellor of the Exchequer must provide a forecast for oil prices and set out anticipated yield from fuel duty and VAT on fuel for that price and for a range of prices up to 50 per cent. above his forecast.

(1AB) The Treasury must, following each such statement, by regulations made by statutory instrument reduce the rates of duty specified in subsection (1A) in direct proportion to the increase in the costs accounted for by VAT.

(1AC) Whenever international oil prices rise above the level estimated by the forecast made in accordance with subsection (1AA), indexed fuel duty increases shall not take effect until the international oil prices return to the forecast level or the forecast price is amended by the next Budget or pre-Budget Statement.”’.

New clause 9—Fuel duties: rates and rebates: road hauliers and remote rural areas—

‘(1) HODA 1979 is amended as follows.

(2) In section 6 (excise duty on hydrocarbon oil) after subsection (1A) (as substituted by section 11 of this Act) insert—

“(1AA) In every Budget Statement and pre-Budget Statement the Chancellor of the Exchequer must provide a forecast for oil prices and set out anticipated yield from fuel duty and VAT on fuel for that price and for a range of prices up to 50 per cent. above his forecast.

(1AB) The Treasury must—

(a) following each such statement, by regulations made by statutory instrument reduce the rates of duty specified in subsection (1A) in direct proportion to the increase in the cost accounted for by VAT;

(b) provide a mechanism to pay the reduction directly to road hauliers with an ‘O’ licence including a restricted licence, a standard licence or a standard international licence;

(c) bring forward proposals not later than the pre-Budget Statement 2008 to provide specific fuel duty reductions targeted at fuel sold in remote rural areas.

(1AC) Whenever international oil prices rise above the level estimated by the forecast made in accordance with subsection (1AA), indexed fuel duty increases shall not take effect until the international oil prices return to the forecast level or the forecast price is amended by the next Budget or pre-Budget Statement.”’.

New clause 14—Remote rural fuel discount scheme—

‘(1) The Treasury shall by regulations provide for the introduction, by no later than 1 April 2009, of a remote rural fuel discount scheme.

(2) The purpose of the scheme is to provide a rebate on road fuel duty at qualifying retail outlets in qualifying areas to reduce the premium paid for fuel in such areas over the national average.

(3) Qualifying retail outlets under subsection (2) are outlets located in qualifying areas meeting any criteria as defined under subsection (4).

(4) Qualifying areas are remote rural areas as may be defined by regulations under subsection (4).

(5) Regulations under subsection (1) may—

(a) specify the amount of the fuel duty rebate;

(b) define “remote rural areas”;

(c) define qualifying retail outlets, including any restriction;

(d) specify how the rebate is to be applied, including—

(i) authorising HMRC to define procedures and conduct audits, and

(ii) how any administrative costs are to be defrayed;

(e) provide for it to be an offence for a person fraudulently to supply or sell rebated fuel other than as proscribed by these regulations;

(f) provide for a system of registration of eligible retail outlets;

(g) provide for the scheme to be administered in Scotland by the Scottish Executive and in Wales by the Welsh Ministers.’.

Amendment No. 9, in clause 15, page 8, line 9, at end insert—

‘(3A) In paragraph 1C (the reduced rate)—

(a) in sub-paragraph (1) for “or C” substitute “C or D”;

(b) after sub-paragraph (4) insert—

“(4A) Condition D is that the vehicle is an off-road working vehicle.”;

(c) in sub-paragraph (6) insert at the appropriate place—

““off-road working vehicle” means, subject to any provision which may be made by the Treasury in regulations made by statutory instrument, any vehicle which is used primarily for business purposes off adopted roads,”.’.

Amendment No. 7, page 8, line 21, leave out from ‘to’ to end of line 22 and insert

‘any licence taken out in respect of a vehicle first acquired on or after 13 March 2008.

(7) In this section “first acquired”, in relation to a vehicle means acquisition when it has not previously been owned.’.

Government amendments Nos. 22 and 23.

Today’s debate on the cost of motoring relates to issues that have relevance to the lives of millions of people, so the need to get the policies right is paramount. The Government announced in the Budget and have begun to deliver through the Bill a vehicle excise duty policy that is unfair and ineffective, and will make life harder for large numbers of people in this country.

If the policy is so unfair, why have five Conservative MPs on the Environmental Audit Committee stressed that it is a necessity?

The hon. Gentleman has asked an interesting question. The answer is that we do not have a problem with graduated VED linked to the level of pollution of cars in principle. What we have a problem with is ineffective green taxation that is nothing to do with the environment and everything to do with eco-stealth taxes. If he is willing to stay in his place and listen to the remainder of what I have to say, I will carefully run through just how much the Government’s policy on vehicle excise duty will affect the environment by 2020. If he thinks that that is not enough, I am sure that he will be happy to jump up and challenge the Government.

New clause 3, which, among other new clauses, is what we are all here to debate this afternoon, aims to get the rising impact of motoring costs out into the public domain. New clause 3 seeks to protect people from the serious consequences of the Government’s planned retrospective changes to vehicle excise duty. I shall outline a number of concerns about the effects that the Government’s vehicle excise duty changes will have, many of which new clause 3 attempts to tackle.

I very much support what the hon. Lady is saying about the retrospective taxation of people who bought their cars expecting to pay just the normal increase. Will she say what the Government would have to say for her to withdraw her new clause?

I will not be withdrawing my new clause, because it is the best insurance policy we all have to ensure that the Government tackle the situation. I will say later why it is important to resolve the issue today, rather than finding ourselves, this time next year, in another situation like the 10p tax rate fiasco, which we got rid of yesterday, only this time with vehicle excise duty.

The hon. Lady used the word “retrospective”. I should like to be clear what she means by that. Is she saying that any increase in vehicle excise duty that applies to existing cars is retrospective?

What I am saying is that the hon. Gentleman’s Government should take the same approach that they took when they introduced band G. When they introduced a higher band for vehicle excise duty based on pollution, they said that it should apply only to vehicles already registered going forward. That was a fair way of ensuring that people would not be taxed for past behaviour that they could not possibly change. I am happy to explain in more detail why I think the Government’s proposal is so bad and why so many of the hon. Gentleman’s colleagues agree with us.

There is no doubt that the proposed increase in vehicle excise duty will lead to a massive tax rise. The Treasury has admitted that its take from graduated VED will increase by more than 100 per cent. over the next few years. Figures released by the Treasury to me reveal that the take from graduated VED will increase from £1.9 billion in 2006 to £4.4 billion in 2010. I repeat: green taxes have to be offset by decreases in taxes elsewhere, precisely to ensure that families are not overburdened by tax at this time of economic hardship.

I use the term “green taxes” loosely when describing the vehicle excise duty changes announced by the Government. One would hope that a tax increase of several billions of pounds would lead to some impressive vehicle emissions savings, but that is not the case. The argument that the changes will help the environment is simply not true. The Government have admitted that minimal emissions savings will result from the changes to vehicle excise duty rates. According to the figure that I have been given by Ministers, they expect annual emissions from motor vehicles to reduce by 160,000 tonnes a year by 2020. That is a fraction of 1 per cent. of total transport CO₂ emissions, which were 120 million tonnes back in 2006, just one year.

According to the Ministers sat in front of me, the long-term effect of the policy will be to change vehicle emissions by 160,000 tonnes a year by 2020. Did the Treasury concede that that is not a meaningful reduction? Did it promise to take a fresh look at the tax, to make it really work for the environment? No. Having released this statistic to me, its response was simply to repackage it. Instead of saying that it would involve a minimal amount each year, the Treasury tried to make it sound larger by saying that it would be 1.3 million tonnes by 2020. Actually, that is the total amount of emissions that will have been saved by the policy by 2020, yet, in every single year, there are 120 million tonnes of carbon dioxide emissions from motor vehicles.

The hon. Lady makes an excellent point, and it is reinforced by the latest report from the Environmental Audit Committee, which has been signed by, I think, a different five Conservative Members from those to whom I have already referred, although there might be some overlap. The Committee is ably chaired by the hon. Member for South Suffolk (Mr. Yeo). The report’s overview warns of the danger of abolishing the fuel duty escalator and other issues. It also warns that, unless more drastic action is taken, the reduction that is being sought will not be achieved. What drastic action is the hon. Lady suggesting should be taken? Does she endorse what her five colleagues have said?

I endorse what nearly 50 Labour Members have done, which is to sign an early-day motion saying that these retrospective tax rises are deeply unfair. The hon. Gentleman does a disservice to green taxation by supporting a green tax that is so unfair. How can we possibly change people’s behaviour on the environment in relation to something that has already happened?

I should like to correct the hon. Lady. The early-day motion to which she referred does not say that several Labour Members believe that the retrospection is “deeply unfair”. It states:

“That this House is concerned at the retrospective effect of the vehicle excise duty changes announced in Budget 2008 to take effect from 2009; and asks the Government to reconsider.”

I am a signatory to the motion. The hon. Lady is wrong to say that it used the words “deeply unfair”, as they were not in the motion.

The spirit in which the hon. Gentleman and I both believe that it is unfair to tax people because of the choices they have made in relation to motoring, in order to try to reduce emissions, is the same. There are clear similarities between us.

May I give the House a practical illustration of the unfairness of the proposal? Many of my constituents drive second-hand cars, and the value of those vehicles has now been reduced by several thousand pounds because of this retrospective taxation. Those living in rural areas depend on their cars and have already been hit by higher fuel prices. They have also been hit at home by the escalating cost of domestic heating oil.

My hon. Friend is right. The result of this change will be more dramatic for taxpayers than the result of the 10p tax rate fiasco. About 1.2 million drivers will experience a tax rise of either £220 or £245, which they could not possibly have foreseen when they bought their cars up to seven years ago. A further 1.1 million will see retrospective increases of up to £100, and possibly more, between 2008 and 2010. That will mean that twice as many people will be worse off by twice as much money as we were talking about yesterday in relation to the 10p tax rate fiasco.

On the issue of fairness, has my hon. Friend seen the report by Professor David Newbery of Cambridge university, which I believe succeeds the report from Environmental Audit Committee that has just been mentioned? In it, he concludes that if motorists were to pay a full contribution towards the effect that their vehicles had on the environment, they would be paying fuel tax at a rate of 20p a litre. Is my hon. Friend aware that fuel tax is currently 60p a litre? Motorists are therefore already paying far more than their fair share towards the environment, without having to pay these increases in vehicle excise duty, which are clearly not a green tax but a stealth tax.

My right hon. Friend makes an interesting point. If we are to reduce motor vehicle emissions, we clearly need more effective tools than the one that the Government have proposed in this year’s Budget on the change to vehicle excise duty. Those who will be affected by the proposals are people with older cars, people with family cars and people on low incomes who simply cannot afford to upgrade to a less polluting car. What kind of policy creates a situation in which the owner of a new Porsche will face a smaller tax increase than a family with an older family car? It is clear that we need to revisit this decision.

I want to focus for a moment on the most serious aspect of the retrospective part of this tax hike—namely, the impact on people on low incomes. From statements made by Ministers, and from the minuscule amount of data that I have received in answer to parliamentary questions, I understand that about 1.3 million people earning less than £15,000 a year will be hit by above-inflation increases in vehicle excise duty. Some of them will face rises of £245 a year. That is a week’s take-home pay that the Government are going to take out of their pockets through this proposal. We believe that up to 750,000 of them will face increases that are triple the rate of inflation. It is completely unacceptable that these changes to vehicle excise duty should have a greater impact on those on the lowest incomes.

Whatever hon. Members’ view of graduated vehicle excise duty might be, we would all have hoped that the Government would be honest about what was being proposed. That was not the case, however. They have proved to be disingenuous about the facts from the word go. The retrospective element of the changes to vehicle excise duty were buried in the fine print of the Red Book. I am not sure how many families the Chancellor imagines read the Red Book, but I think that it would have been courteous, respectful and decent of him to tell them about these changes in his Budget speech. At the very least, he could have clearly described the change in the Red Book for what it was—a retrospective tax. But he did not have the decency to do that either. Instead, it was left up to readers of the Red Book to infer from table headings and dates that changes to road tax levels had been put into the Budget in this way.

Another thing that was not mentioned in the Red Book was the transition period over two years for those worst affected by the changes announced in this year’s Budget. I cannot help but think that that was introduced as an afterthought.

Does the hon. Lady agree that the primary objective of a truly green tax should be to change behaviour? Does she further agree that it is an essential principle of fairness in such a case that the people involved should be able to change their behaviour, and that the people whom she is talking about have no option and cannot change their behaviour?

The hon. Gentleman is right. This goes to the heart of new clause 3. In spite of the fact that the Liberal Democrats voted for clause 15 of the Bill—which contained these proposals when we originally debated them—I am pleased to see that cross-party consensus is now emerging on this issue, because it is important.

I was talking about the fact that the retrospective element of the vehicle excise duty proposals had not been fully disclosed in the Red Book. Additionally, the Government have repeatedly claimed that the majority of motorists would be unaffected or no worse off because of these changes. That claim has been made on numerous occasions by the Chief Secretary to the Treasury, the Chancellor and even the Prime Minister, as well as by Treasury Ministers who are sitting in front of me today. They continue to make that claim to this very day, despite it being demonstrated again and again that it is simply wrong. In fact, by 2010, 80 per cent. of motorists paying graduated VED will pay more as a result of these changes. A total of 18 million motorists will face above-inflation rises.

Of course, one point of the vehicle excise duty is to change people’s behaviour, but as the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) pointed out, a change of behaviour cannot occur in every circumstance—and I am thinking particularly of crofters and farmers. Could the Government use the single farm payment as a mechanism for exempting crofters and farmers from this retrospective tax?

The hon. Gentleman raises an interesting point. What I am trying to do—I hope he will be pleased—is to ensure that nobody is hit by the retrospective element of the proposed tax rise. The reality is that the change will impact seriously on large numbers—literally millions—of people. Trying to hide it with a statistical sleight of hand, which is what Ministers have sought to do, is simply unacceptable.

Has my hon. Friend, like me, received many representations from people who simply cannot believe that this huge extra tax will be imposed on those with so little money to pay it? People are also worried that their older cars will plunge in value, making it difficult for them to sell and buy the newer sort of car that the Government want them to buy. Is it not surprising that we do not hear more from Members from all parties who should be representing the real anger that people are expressing?

Like my right hon. Friend, I have received many representations. People up and down the country are, frankly, furious about being confronted with a tax rise that they have no way of avoiding. They will face it not just for one year; they will be locked into it for several years. As my right hon. Friend said, many people will be unable to afford to buy a new car because the value of their current car will have plummeted as a result of these tax changes.

Does my hon. Friend know whether the Government have done any calculations of the amount of value that will be wiped off numerous second-hand cars owned by lower-income families? What does she expect will happen to those older cars in that changed car market?

A number of Members are expressing their concerns. My hon. Friend is absolutely right that it is unacceptable to introduce a retrospective tax in the Budget that people will be unable to avoid paying.

I have tried to find out the real impact of the VED changes announced in this year’s Budget. I have tried to do so by tabling numerous parliamentary questions and I have even gone so far as to write to Ministers on two occasions. Everyone is concerned to understand the impact of those changes throughout the country, but to this day no details have been released from the Treasury to the public to help them understand that impact. I have 18 outstanding parliamentary questions asking about which people will be affected and to what extent. I await answers from the Treasury. Many questions relate to the impact on low-income families and some are getting on for two months’ old. I tabled them almost immediately after the Budget and the start of debates on the Finance Bill. I have written letters to the Financial Secretary, but I have received no replies whatever. Disagreement on policy is one thing—it is part of the political process—but for Ministers to hold back the facts, bury their heads in the sand, exhibit a complete lack of transparency at every stage of the process and refuse to engage in a reasoned and informed discussion of the impacts of crucial policy decisions affecting millions of people is quite another and is simply unacceptable. It is a failure of the Government’s duty to the House and to the people of this country.

The problems with the VED proposals are clear. They mean huge tax rises; they offer virtually no benefit to the environment; they are unfair in backdating retrospectively; and they will hit families and people on low incomes. The proposed changes cannot be allowed to stand. That is why I tabled new clause 3. It is designed to send a simple, clear and strong message to Ministers that although green tax on cars can be imposed, it cannot be right to punish people with tax rises in respect of decisions they made in good faith up to seven years ago. The issues in the clause go beyond party politics.

Does the hon. Lady agree that even from an environmental perspective, this retrospective policy makes no sense whatever, particularly if its purpose is meant to be carbon reduction? It ignores the huge carbon cost involved in the purchase of a new car. It has been estimated that even a Toyota Prius has to run for 100,000 miles before it pays for the carbon cost of swapping an older car for a new car. It makes no sense.

The hon. Gentleman makes a very fair point, and the Treasury has admitted that this proposal will have virtually no impact on CO₂ emissions from motor vehicles in the coming years. What we need to do today is to put aside our political differences and do the right thing for the people most hurt by the Government’s VED proposals—namely, the public, families and particularly low-income families.

Will the hon. Lady give way?

I have given way enough to the hon. Gentleman.

I am asking Labour Members to do the right thing. What is more important to them—stopping families and people on low incomes from going under financially in the coming months and years, or toeing the party line? That is what the decision on new clause 3 comes down to.

If Members see no problem with the effects of the Government’s policy of unfairly taxing people who cannot afford to pay, that is fine. If they can tell concerned constituents who speak of the pressures imposed by increases in tax and the cost of living that the Government’s proposal went ahead and they voted for it, that too is fine. But if they cannot do those things, I think it worth remembering that our job here as Members of Parliament is to represent our constituents, and to give those people a vote. We have a chance today to send a message to Ministers that this proposal is wrong, and that they need to think again. We know from what followed the other great error of the Budget, the 10p tax rate fiasco, that they will listen if enough of us tell them that this simply is not good enough.

We have been trying to make Ministers listen. Early-day motion 1464, tabled by the hon. Member for Blyth Valley (Mr. Campbell) and signed so far by 68 Members—50 of them Labour—expresses concerns about retrospective increases in vehicle excise duty. Along with my colleagues who were members of the Committee, I have raised the issue again and again as the Bill has progressed through its parliamentary process. That process is nearing an end: the end will come today. We have all listened to the Government’s explanations and excuses, and they do not stack up. The Government have not made their case, because there is no case to make. The time to correct this error is now.

Of course, there is an alternative. I did not have to table new clause 3. I could have let the issue drag on, and it could have remained high on the political agenda until next year’s Budget. That is what I will do if we cannot address this falsehood of tax rises now, but in the meantime I have tabled new clause 3 in a genuine attempt to correct the mistake sooner rather than later. It is better for everyone—including, I believe, the Government, but obviously the British people most of all—if we can find a solution to this important problem now. Families need to plan for tomorrow, now more than ever. They need certainty in regard to what costs and financial constraints they are likely to face in the years to come.

I agree with the hon. Lady’s criticism that a retrospective tax would be both unfair and ineffective, in that it cannot change a decision made four, five, six or seven years ago. It is an extremely unsatisfactory form of taxation. Any retrospective taxation is, per se, a very bad form of taxation, and I think the House should have no truck with it. But will the hon. Lady say something more about her solution? If retrospective taxation is, as I believe, an unacceptable way of levying taxes, so are statutory instruments, which are unamendable and are dealt with outside the Chamber.

The hon. Lady understands these matters. I agree with her criticism, but her suggestion of a statutory instrument is an extraordinary and, I think, a very poor parliamentary solution. We never create serious taxation through statutory instruments, and in my opinion doing so constitutes an offence against Parliament.

I understand what the hon. Gentleman has said. I tabled new clause 3 because I felt that it was better for us to debate the matter this year, and the new clause was the best way of enabling us to do that.

I think we would all much prefer the Government to say today that they will not proceed with the retrospective element. What I am keenest to do, however, is give the House a voice, so that we can send a message to Ministers that we do not want their proposal to progress and we do not want to wait until next year’s pre-Budget report to find out that it will be ditched. If that is to happen, we need it to happen now for the sake of the families who will be affected. I accept that my new clause may not be the most elegant, but it does give us a chance to have our say in this Parliament sooner rather than later. It would not be a complex matter to reverse the decision. It is not like the 10p tax rate fiasco. We know exactly what we need to do, and we can do it now—and we know how to do it, too, which is by voting for new clause 3. We agree with green taxes, but not with punishing people for decisions they made years ago and they are in no position to change.

There have been two big problems with this year’s Budget: the 10p tax rate fiasco and vehicle excise duty. We have corrected one—we know the Government will listen when forced to do so—and we now need to correct the second.

I believe that the Government do have some thinking to do in relation to VED, and I will explain some of the reasons why shortly, but there is absolutely no way I will vote for this new clause. It is incoherent. The hon. Member for Putney (Justine Greening) says that this is a simple matter, but it is anything but simple to work out the relationships between taxation on cars based on their performance and their contribution to combating climate change and the influence of those factors on customer behaviour.

Even though I have some problems with the Government’s proposals, I question the concept that what is being proposed—regardless of whether it is good or bad or somewhere in between—is retrospective. It is not retrospective. Why do I say that? We first have to ask why it is thought to be retrospective. The concept of retrospection is to do with time. Are we saying that any taxation levied on an existing vehicle is by its nature retrospective? We may agree or disagree with, let us say, either a flat rate or a graduated increase in VED, but they are not retrospective. From the point of view of the headlines, it is great to talk about this being retrospective taxation, but it simply is not.

When the Government introduced new band G, they did so only for cars registered from the given date onwards. That is the difference between that change and the change and the new bands proposed now, which kick in not for cars registered from now on but for those that have already been bought, and bought by people who could never have known that they would fall into these higher tax bands.

What the hon. Lady says about the introduction of that new band is absolutely true, but that does not make a different kind of increase that applies to existing vehicles retrospective. She may agree or disagree, but that does not alter whether or not it is retrospective.

To the public, this is semantics. Someone who bought a car seven years ago based their decision on how much it cost and whether they could afford to run it. Regardless of how the hon. Gentleman might wish to describe this, to introduce an additional cost seven years down the line—to cars that might be the family run-around, and which those families might be finding difficult to afford to run at all—will be seen by many people as retrospective, because those purchasers did not make the choice at the time to buy a higher-cost-to-run car.

I have some issues with the proposed scheme, but although the hon. Lady is right in that the public will not go through the fine detail of what we are saying, it is important that we are straight with them, and that includes not calling something retrospective when it simply is not.

Is it not the case that in every previous move towards variable emissions-based road tax, the changes have been levied on existing vehicles? That happened in the Budgets of 1999, 2002, 2003 and 2006. I do not recall the Opposition using the word “retrospective”, incorrectly, to apply to any of those previous Budget decisions.

My hon. Friend is right, and that is why the hon. Lady was being very selective when she chose to refer only to the change that introduced band G.

Is this tax a retrospective decision or not?

No. Obviously, I am not making myself clear, because I am arguing that this is not a retrospective change.

The key issue that we have to face is whether vehicle excise duty can be a useful way to combat rises in CO₂ emissions. Given the interest in this debate, I am sorry that more hon. Members were not present yesterday when Julia King, of the King review, spoke to the all-party motor group and covered some of these issues. Some of the issues that arose were very interesting. The King review says that if people drive more efficiently, they can probably reduce their carbon emissions by about 15 per cent. It also says that if people choose the most appropriate car for their use, they could probably reduce their carbon emissions from transport by another 15 per cent. If they choose the most fuel-efficient car in the class of car that they use— whether they drive a hatchback or a 4x4—they can reduce their emissions by 25 per cent.

Most cars in this country are not the biggest or most expensive. The volume is in the middle and small ranges, so if we want to have an impact on the contribution of road transport, especially cars, on CO₂ emissions, we must do something about the middle and lower ranges.

In the Opposition day debate on 14 May, I asked the Opposition spokesman if he believed that, in principle, vehicle excise duty should have a role in incentivising customer choice. He said that it should, but only in respect of cars not yet purchased. That is incoherent: it has not been the case before, and it is not the case now. VED rates already in existence apply to cars that people already own, not just those that they buy in the future.

When people buy cars, they do not, by and large, buy new cars. Fleets do, but private customers tend to buy second-hand cars. Therefore, the decisions about the rate of vehicle excise duty should apply to existing cars—those that people own already—and not just to new ones.

VED rates can incentivise people to embrace greener motoring in two ways. First, the incentive can be to buy a car with lower CO₂ emissions. The second way is by influencing the decisions whether and when to change vehicle. The problem with the new clause is that it contains no incentive for people who already have cars with the highest emissions to change them. That is illogical, because the environmental performance of cars in all segments of the market is improving year on year. If, as some people suggest, taxation is weighted on to new vehicles and second-hand cars are exempted, people will be incentivised to keep vehicles that are less fuel-efficient, instead of changing to newer ones in the same class that are more fuel-efficient. As I said, the King review said that if consumers chose the lowest emission car in their class, they could reduce their carbon emissions by 25 per cent.

Do such incentives work in practice? I would like to think that exhortations to save the planet would get us somewhere. In fact, some surveys suggest that it is not as simple as that. What Car? did a survey on the impact of this year’s Budget on whether people would choose a greener car next time they buy. The bad news is that 34 per cent. of people said no, the Budget would have no impact at all. However, of those who said yes 19 per cent. said that they would be incentivised to buy a greener new car because they felt that they were being encouraged to save the planet, while 47 per cent. of people said that they would buy a greener car because it would save them money. The economic aspects have an impact.

Of course, there is a balance to be struck with affordability, and that is why I have some problems with the Government’s proposal. The problem with what the Government have been doing does not lie in the principle, and Conservative Members are wrong to say that it does. There are problems with the detail and the phasing of the change. It is right to increase the number of vehicle excise duty bands to equate better with the environmental performance of vehicles, but there can be a Catch-22 for low-income families if the increases and the way in which they are phased are too steep. Someone cannot get rid of an existing vehicle and move to a more fuel-efficient vehicle if, as an Opposition Member mentioned earlier, the second-hand value of their vehicle is reduced to such an extent that they cannot sell it and buy a different one. However, if they do not sell their original car, they are still hit by the increase.

There are issues with affordability and people’s ability to pay. We must take on board the impact on families with children, who require bigger vehicles, on the disabled and so on. At a time where we have a difficult economic situation, with fuel prices making people think more carefully about the cost of motoring, the precise way in which the change is made needs to be rethought. However, the right way to do that is to think about the subject properly between now and the pre-Budget report and to consider the best way of achieving the objectives that we want to achieve, rather than having a knee-jerk reaction today.

We need to look at how the economic circumstances of the time relate to what we need to do with vehicle excise duty. We need to look at whether we can tax things better, particularly when fuel prices are fluctuating as much as they are at the moment. We could consider some forms of incentives to stimulate more fuel-efficient driving. We could consider, for instance, doing something about reducing the motoring taxation of people who go on eco-driving courses, which exist these days. We could look at incentivising the fitting of dashboard displays that remind people how much fuel they are using and, if possible, what that costs. We could provide more obvious customer information, and the King review has proposed a number of examples of how we could do that. People need to understand what is being proposed, and when taxes are raised through motoring they need to be clearly hypothecated towards road transport and the kind of objectives that we want, such as improving the fuel efficiency of cars.

Finally, we need to consider whether in the current climate it makes a lot of sense to maintain the price differential between diesel and petrol when diesel vehicles, by and large, are a lot more fuel-efficient than petrol vehicles. We need to think about how we can incentivise research and development into more fuel-efficient vehicles and put more money into investment in that R and D. That is why we need more thorough thinking on that matter and we need to take time to do it. That is why we have to do it in the pre-Budget report. It is completely wrong to try to bounce the view of the House and the public in an over-simplistic way, as the Opposition are doing today.

I shall take the opportunity to discuss the full string of amendments and new clauses that all come under the title of “Cost of motoring”. So far we have had a narrowly confined discussion on vehicle excise duty, and although that is an extremely important issue—it is probably the most high profile of the amendments and new clauses before us—it is by no means the only one.

I am talking about the cost of motoring as a whole. I suppose that the reasons it has become such a contentious political area and aroused so much public interest are threefold. First, there has been a dramatic increase in oil prices in recent months. Secondly, there is the issue of environmental taxation and whether the Government are applying it fairly, and thirdly there is a squeeze on household income, so people are inevitably more price-sensitive than at times when wages increase faster. To set the scene before I turn to the new clauses, I shall quickly go through each of those factors in turn.

Supply and demand clearly drive oil prices around the world. It impossible to say at this juncture whether oil prices are spiking. We do not know whether we are at the beginning of a longer-term trend or whether prices will be higher or lower a year from now. All we can say with some certainty is that the trends appear to be upwards. That is a logical inference; one need only look at the number of two-car or even three-car households in the UK compared with 10 or 20 years ago. One need only consider countries such as China and India: in the big cities there, most journeys were undertaken by bicycle 20 years ago; now a large number of vehicles are being driven daily. There is clearly rising global demand for oil, and in the short term it is hard to satisfy that steeply increasing demand. People around the world are wondering whether it will be hard in the medium to long term as well. The problem is not unique to the UK.

The hon. Gentleman is making a genuinely interesting point, but surely he is aware of what Ministers in OPEC are saying, which is that there is no problem in meeting the world’s demand of 88 million barrels a day, and that the increase in price is due more to speculation. That suggests that his hypothesis that there is a continual upward trend is not correct.

We will have to agree to disagree on that. It is very hard to increase production capacity dramatically in the short term, yet there have been increases.

It might help the hon. Gentleman if I say that my hon. Friend the Member for Lewes (Norman Baker), who is a doughty campaigner on these matters, asked the Department for Transport a question and received a written answer on 25 June, a week ago. He asked about increases in petrol and diesel prices in all the EU countries. He was told the prices in January 2005 and April 2008, which was extremely helpful and interesting. They are a few months out of date, and of course prices have since risen further, but the trend between the beginning of 2005 and a third of the way into this year is interesting and informative.

In that time, petrol prices rose by an average of 36 per cent. in the UK. That is a sharp increase, and markedly more than the increase in wages in that time. However, it is fair to say that in the comparable large economies of western Europe, the rises were even greater, although I acknowledge that they started from a lower base. In France, the rise was 51 per cent., and in both Germany and Italy it was 44 per cent. By April 2008, the UK no longer had the highest petrol prices in Europe. The average price of a litre of unleaded petrol was higher in Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Portugal and Sweden.

That is not true of diesel, for which we still have the highest price per litre in the EU, but other countries began to catch up with us in that period. The increase in the price of a litre of diesel in the UK was 39 per cent. I acknowledge that that is way in excess of the rise in income and means that people driving the same mileage are having a larger percentage of their overall household budget taken up by fuel costs than in January 2005. Nevertheless, it is reasonable to consider what has happened in other large western European economies and put on record the fact that prices went up by 60 per cent. in France, 56 per cent. in Germany and 52 per cent. in Italy.

I thank the hon. Gentleman for giving way. I have written to two major supermarket chains and three major oil producers asking whether they can explain why the differential between unleaded petrol and diesel has risen to between 11p and 16p a litre, compared with between 2p and 3p a litre 18 months ago. Will he share with the House his views on why that may have happened?

I am grateful for that intervention. I should declare an interest, in that my car has a diesel engine. Until about a year ago, I paid about 1p or 2p more per litre but—and this follows on from a point made in the previous speech—the greater fuel efficiency of diesel meant that the mileage was greater and that the cost differential was almost zero. The cost of diesel is quite a lot greater now, as a result of higher demand and restricted refining capacity. However, that prompts questions about whether the Government should introduce additional incentives for people to switch to diesel-fuelled cars, and that is territory that I do not intend to venture into in this speech.

I thank the hon. Gentleman for giving way again. Does he think that the Office of Fair Trading might look at this matter?

I thank the hon. Gentleman for that question, but I do not want to be distracted, as I do not believe that the question is about the fairness or unfairness of trading; rather, it is about demand and oil producers’ capacity to refine the product in the way that they need to if they are to bring it to market.

The rise in the oil price is the first reason why the cost of motoring is a high-profile issue in the country at large at the moment. The second is environmental taxation, and I shall say more about that as it forms the basis of most of the new clauses and amendments under consideration. The third reason is the squeeze on household incomes. That is worth mentioning, as the sizeable rises in fuel costs in the UK and other EU countries that I have just set out have been accompanied by increases in food, utility bills and council tax. All those rises are happening at a time when the income of most households is being held down; in many cases, it is even not rising as fast as the official inflation rate, which itself is not in line with most people’s experience. We are dealing with a live and important issue that will not go away. Unless the Government confront aspects of it today, I fear that they will find that their woes only accumulate.

However, the Conservative record is also less than glorious. The hon. Member for Putney (Justine Greening) accused the Government of a “complete” lack of transparency when it came to environmental taxation. The Conservative party likes to give the impression that it is environmentally friendly. To Friends of the Earth, it emphasises its new-found environmental credentials, but its speeches to road hauliers are rather different.

The leader of the Conservative party has put a windmill on his house, changed his party’s logo to an image of a tree and bought some extremely expensive recycled trainers that used to be old tyres. That is the entirety of Conservative policy on environmentalism. If he thinks that that will cut the mustard, he needs to have a higher regard for the intelligence of people in this country.

The speech by the Conservative spokesman, the hon. Member for Putney, contained a straightforward contradiction, and she may wish to intervene on me to clarify the point. She said that the Government were increasing the total VED tax take from £1.9 billion to £4.4 billion—a sizeable increase—but she then said that the policy was not working, as it would lead to emissions savings by 2020 of only 0.16 million tonnes.

The only logical inference from that observation is that the Government are not taxing fuel nearly aggressively enough. If the hon. Member for Putney believes that emissions are not being cut enough, and if she is in favour of environmental taxation, the presumption must be that she wants consumers to be even more incentivised to make greener choices.

The hon. Gentleman seems to have completely missed my point. The tax is not having an impact on emissions because it taxes behaviour that has already happened—it is impossible for people to go back and change it. That is the primary reason for the tax not causing a greater decrease in motor vehicle emissions.

The hon. Lady is right, of course. That is why we agree with the Conservative party. It has wisely come to agree with us on the need to give people real choices about the environment. However, we disagree with the Conservatives’ attempt to hide from the electorate the consequences that would inevitably flow from their rhetoric. My party is in favour of differential VED rates, which were never introduced when the Conservatives were in government. The Conservatives seek to imply when they speak to environmental groups that they, too, want people to drive more fuel-efficient cars, but we do not hear a lot of that in their day-to-day discourse or in debates in the House.

If the hon. Lady does not think that the Government’s policy is doing enough to cut vehicle emissions, the logical position for her to take, which is my party’s position, is that VED differentials should be greater for all newly acquired vehicles and should take account of engine size, which would offer people greater incentives to pick more fuel-efficient vehicles.

This string of amendments contains some extremely interesting proposals about helping people who live in remote rural areas and about off-road working vehicles, and I am certainly disappointed that the Conservative party appears to take no interest in those subjects.

The hon. Gentleman makes a plea for greater differentials for new vehicles, but is that not exactly what the Government are planning for 2010-11, when the most-polluting vehicles will pay an additional first-year charge of £950? That answers his point exactly, and he should congratulate the Government on doing that.

That is what the Government are doing, but our view and that of the Environmental Audit Committee, which, as we were reminded earlier, is chaired by the only Conservative who is allowed to follow the logic of his leader’s position on this matter, is that those differentials must be greater to achieve the environmental benefits that my party wishes to achieve. In other words, people must be better rewarded for driving more fuel-efficient cars.

May I, as a member of the Environmental Audit Committee, correct the hon. Gentleman on that point? Our pre-Budget report last year called for an increase in the differentials on new vehicles. That is exactly what the Government have done in their Budget this year, as indicated by figures that appear in the Red Book. That response exactly deals with his plea for greater differentials on new vehicles in the future, so will he congratulate the Government on doing what the Environmental Audit Committee called for?

I will give way again if the hon. Gentleman can answer this question: did the Government introduce differentials as big as those recommended by the Environmental Audit Committee?

The Environmental Audit Committee did not recommend any size of differential; it gave an indicative range that is broadly reflected in the higher band figure that the Government have introduced.

We are in danger of going into a cul-de-sac. Everyone says that they are in favour of differential VED—so we can agree on that—but the question is how big those differentials must be to achieve environmental benefits. My view and that of my party is that they need to be bigger than Government propose and that they should not be imposed retrospectively.

Let me try to help the hon. Gentleman and other hon. Members out of the cul-de-sac. Is not the great weakness of the Government’s position and the proposals before the House that the issue is not about what happens in relation to progressive VED on new vehicles, but about how we change the performance of existing vehicles and the behaviour of those who own them? In that sense, there is nothing green about either the Government’s position or these proposals. A greening of behaviour can come about only if there is some form of hypothecation of the taxes raised by the measure to allow and equip people to change the engine types of their vehicles to adopt lower pollution standards. Hypothecation is absent as a mechanism to allow existing vehicles owners to become lower carbon contributors in the economy that we are trying to construct.

That was an extremely widely worded contribution. I do not disagree with it, but I fear that I would end up in many different areas if I tried to answer it in detail, so I shall try to answer it during the remainder of my contribution.

My hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso) has tabled new clause 14, which deals with the remote rural discount scheme. I hesitate to intrude on the cosy metropolitan consensus that exists within ministerial ranks, but it is worth explaining to the House that in many parts of the country it is hard to use modes of transport other than the car because there is very little public transport. People use their cars not for leisure purposes, but for everyday purposes such as travelling to work. My hon. Friend will explain the proposed effects of his new clause in greater detail, but I urge the Government to look sympathetically on the circumstances of people who live in remote rural areas where there is no alternative to the private car.

The particularly interesting aspect of my hon. Friend’s new clause is the provision whereby he seeks to enable the devolved Administrations in Scotland and Wales to implement and administer the scheme. That would be an interesting way for the Scottish National party in particular to demonstrate its commitment to such matters.

New clause 14(5)(b) says, “define ‘remote rural areas’”. I appreciate that the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) will speak to the new clause, but would the hon. Member for Taunton (Mr. Browne) care to share with the House his vision of exactly what “remote rural areas” means?

They would have to be remote and they would have to be rural. The new clause deals precisely with that question, but as I am not the person who tabled it, it seems only fair and reasonable that the Member who did, my hon. Friend the Member for Caithness, Sutherland and Easter Ross, should deal with it in detail.

The hon. Gentleman talks about issues in remote rural areas, but does he agree that even in urban areas where there are good bus networks, owing to the distances that many people travel to work and their shift patterns, there often are no buses, so the car is not a luxury and more people will be on the dole if the measures in the Bill go through?

I agree up to a point. I accept that many people use their cars in their everyday lives to take their children to school or to go to work, and that the car is not an option that they can easily drop even in some urban or suburban areas. I was only making the point—my hon. Friend will no doubt make it at greater length—that the situation is particularly problematic for people who live in remote rural areas, because less public transport is available, the distances travelled are typically longer and the price of petrol and diesel is often higher because of the cost of transporting it to those areas in the first place. There are particular concerns in remote rural areas, but in the spirit of consensus, there is a question about quantifying and qualifying who and where would be eligible for the discounts. That is the nub of the debate, and it is probably more appropriate if my hon. Friend leads it.

In an area such as the west side of Shetland, which by anyone’s definition is remote, rural and very sparsely populated, having scheduled bus services running around with nobody on them does not make environmental sense. In such an area, the private car is the environmentally sensible option.

I have a lot of sympathy with my hon. Friend’s point; he knows that part of the country better than I do. We have all observed that bus services can be underused, but I will avoid getting into a debate on buses, because that might take us too far off the beaten track.

We will answer the question of who pays for them when we move the new clauses. Why is the hon. Gentleman making these idiotic partisan comments? The issue has nothing to do with the Scottish National party in the run-up to some election that is two years away. It is about recognising the real increases that people are facing now. It is to do not only with Scotland, but with the whole of the UK. Will the hon. Gentleman withdraw his pathetic, partisan comments and listen to the argument and some of the evidence before he makes his decision?

I simply do not know what provoked that intervention. I did not mention an election. In fact, far from being partisan, I acknowledged that there were particular concerns about petrol and diesel prices in rural communities, and that as large areas of Scotland are rural, those concerns must be felt keenly there. I could not have been less partisan; I was making an entirely conciliatory point. However, if the hon. Member for Dundee, East (Stewart Hosie) invites me to be partisan, I will be a little more partisan. Cutting 2p off pump prices costs the Government about £1 billion, so if the Scottish National party wishes to send the electorate in Scotland—or the motorists of Scotland; let us take elections out of it altogether—the message that the party wants lower prices at the pump, it needs to answer the question: how will it fund those cuts? To be fair, that is a question that all parties in the House have to answer. I read in the newspapers yesterday that, behind the scenes, the Secretary of State for Business, Enterprise and Regulatory Reform is lobbying the Government to defer the 2p increase in petrol duty that is planned for the autumn.

Will the hon. Gentleman give way?

I will in a moment. The Conservative party seems to be facing both ways on the issue; the shadow Chancellor supports The Daily Telegraph campaign to defer the 2p increase, but the party has not yet announced how it will make up the £1 billion shortfall that will result from that cut. The Conservative party has said that the proceeds of all its environmental proposals will go towards a family fund. As a result of the shadow Chancellor’s intervention, that fund would already be £1 billion in deficit. That would have severe implications for families across the United Kingdom, if they were unwise enough to give the Conservative party a position of responsibility.

Will the hon. Gentleman give way?

I will, shortly. [Interruption.] I will, but let me make some progress.

The more charitable explanation is that the Scottish National party is seeking to devise a mechanism that will address spikes in oil prices—a laudable objective. However, in their new clauses, SNP Members do not address the issue of what would happen if prices were to fall. If they were being more straightforward, they might say, “Here is a mechanism for artificially inflating petrol prices in the event of prices falling”. If they are not willing to say that, all that they are saying is that the mechanism is about cutting prices. They have not yet said how they will address the issue of a price shortfall, but they may do so later.

Will the hon. Gentleman give way?

I will, in a second.

SNP Members are considering the issue of oil revenue as though it were in a silo. About four hours ago, the Prime Minister made the point in the House that in any economy there will be revenue streams that go up and are higher than the Treasury anticipates, and revenue streams that fall, or go up by less than the Treasury had anticipated. The Treasury has to consider the public finances as a whole. If a Government ring-fence every area where revenue has risen by more than was anticipated, and say, “We must artificially reduce that,” but do not seek to ring-fence any areas where the revenue is less than expected, they will end up with an overall revenue shortfall.

indicated assent.

I see the Minister nodding; it is an obvious point to nod at. Anyone who can add up will work out that what I am saying has to be true. I do not see how anyone could regard it as anything other than a statement of the obvious, and if I have detained people by stating something transparent and obvious, I apologise.

Is the hon. Gentleman aware that fuel is 30p a litre cheaper in the Republic of Ireland, which has a budget surplus?

I have mentioned countries where the price of petrol is higher than it is in the United Kingdom; I could also mention countries where the price is lower. That is a choice that Governments have to make. If the SNP does not want to cut public spending—I have not heard it make any proposals for such a cut—it needs to try to raise the revenue elsewhere. However—surprise, surprise—I have not heard any proposals on how that revenue would be raised.

My final point on the Scottish Nationalist party amendments is that the Government have this mechanism in a rather cruder form already. One of the issues in this debate is whether the Government wish to implement, further defer or cancel altogether the 2p duty rise that is planned for the autumn. One of the considerations that they are presumably taking into account is the overall price of oil and the effects on businesses and private individuals. The Government already have the ability, if they so wish, to vary upwards or downwards the total amount of duty on petrol and diesel depending on wider economic considerations and the price of oil, without having to introduce a mechanism of this sort.

Will the hon. Gentleman give way?

When I have finished this point.

In a second, I suppose.

Honestly, nobody has spent more time in Finance Bill discussions this year than I have, and there are some Members here who I have not even seen so far. However, I am more than happy to give way to all of them.

The motivations behind new clauses 8 and 9 are in many ways laudable, and I share many of them, but there are all kinds of practical problems that would be insurmountable.

The hon. Gentleman’s comment was clearly not directed at me, because we were debating together yesterday in this very Chamber. His memory is obviously very short.

Will the hon. Gentleman withdraw the idea that we would be short of £1 billion of revenue if we made this adjustment? Is he not aware that there was a £500 million increase in oil and petrol revenues in the first six weeks of this financial year alone thanks to the increased price, increased VAT and increased oil revenues? Surely it would be right to try to get back to the Budget estimate.

That is not the position of those on the right hon. Gentleman’s Front Bench, but he has a long record of having different positions from his Front Bench, even when he was sitting on it, so I will not criticise him on this occasion. The Conservatives’ position, as I understand it—it is hard to understand—is that they would introduce additional environmental taxes over and above those being implemented by the Government, so the starting point is where the Government are. From that starting point, the Conservatives are seeking to put a £1 billion annual hole in their budget for families, so that is the initial deficit that they need to overcome.

Finally—I have been speaking for longer than I wished to because I have been so generous in taking interventions—I want to discuss amendment No. 7 and new clauses 3 and 7, tabled by the Conservatives. My party takes climate change extremely seriously and always has, and we wish to achieve reductions in emissions from transport. Environmental taxation clearly has a vital role to play because transport contributes to a large degree to the total amount of CO₂ emissions. Tax can make a contribution to changing behaviour. That is surely the Government’s motivation, in addition to revenue-raising motives, in increasing tobacco taxation so that the taxation component is a high percentage of the overall price that the consumer pays when buying cigarettes and tobacco products. We support vehicle excise differentials and would support their being at a higher level so that consumers are even more incentivised to buy more fuel-efficient cars.

I agree that environmental taxation has, to a sizeable degree, been discredited by the approach that the Government have taken. They have used public concern about the environment and climate change as a way of raising additional revenue. I do not doubt that they are concerned about climate change, as are politicians in all parties. However, people are understandably cynical when the Government see an opportunity to raise additional revenue based on those concerns without that money then being used to offset and reduce other areas of taxation so that the overall effect is neutral but the environmental taxes form a greater overall component of the total Government tax take. That would be a responsible way for the Government to progress, but I am afraid that it has not always been their approach.

The hon. Gentleman was talking about the overall impact. Have he and his party reassessed their views about the correct level of vehicle excise duty, and taken into account the fact that because of the significant rise in oil prices and the subsequent rise in petrol and diesel prices, motorists have changed their behaviour, reflecting those costs? To have the same increase in VED without taking into account fuel prices does not seem sensible.

That was a helpful intervention. The position of my party is one of greater vehicle excise duty differentials, so that people who choose to drive very fuel efficient cars, or moderately fuel efficient cars, will benefit financially. Those who choose—and it is entirely their choice, which is why we are against the retrospective aspect of the Government’s proposals—to drive more fuel inefficient cars will have to pay a higher premium. But the additional revenue that we raise from that would be used to reduce taxes on individuals, specifically income tax. People would be paying more through environmental taxation, but less through income tax. The overall impact would be zero—it would be entirely revenue neutral. We believe that the proportion of taxation raised through environmental taxes ought to be higher and that the proportion of taxation raised on income ought to be lower.

I shall broaden that point momentarily. Our long-term objective is to abolish vehicle excise duty altogether. Ultimately, we want a system of motorway and trunk road pricing, where people pay for their use of major highways. That would be particularly beneficial for rural communities, which typically do not have motorways and trunk roads, and would allow us to reduce other, rather cruder forms of taxation on cars. However, given the nature of the current system, we favour greater differentials.

I shall conclude by talking about retrospectivity. People with older cars will be hit by the retrospective element of the proposals. It has been said by others that those people cannot easily sell their cars, and because it is harder to sell those cars, the market has corrected itself and the price of those cars is coming down, meaning that their problems are compounded further. Green taxes should incentivise people to make environmentally friendly choices, and people cannot be incentivised to make a different decision from the one that they have already made.

My party does not wish to get into the territory that the Conservatives have sought to occupy, which is to talk green but always vote against the green option. I want to make it absolutely clear that the Liberal Democrats are committed to changing behaviour and mitigating the effects of climate change by introducing environmental taxes that form a greater component of Britain’s overall tax take. But we will not increase taxes overall; we will reduce them on income, and the overall effect will be absolutely neutral. We do not favour retrospective VED, but we do favour greater VED differentials. On that basis, we will support amendment No. 7—

Will the hon. Gentleman give way?

Will the hon. Gentleman give way?

I am bringing my remarks to a close.

We support amendment No. 7, which stands in my name. If new clause 3 is pushed to a vote, we would be willing to support it, although it is deficient, particularly in the introduction of the element of a statutory instrument mentioned by the hon. Member for Stoke-on-Trent, Central (Mark Fisher). Although it is badly drafted, it is better than the Government’s current position.

rose—

Order. Several hon. Members are hoping to catch my eye, but apart from this important group of amendments, further groups of new clauses and amendments are to be debated today.

The debate has been pretty good up until now, and the retrospective bit is interesting. It is a good argument to say that if a car is 10 years’ old, it should be taxed the same as one that is one year old. That is fair—if we tax a car, it does not matter how old it is, it should be taxed. In that respect, the argument is a good one.

However, the argument that I want to put up is for the working-class man or woman who drives a car. The tax is heavy, no matter how we put it—environmentally or in any other way. It means £250 to £300 on second-hand cars, which are bought, in the main, by working-class people—people who work—because they cannot afford new cars. Only Labour Members of Parliament can buy new cars—I am sure that Liberals and Tories buy them, too—and we can afford to pay the tax.

The purchase is not usually based on the model, but on the cost of the car to the purchasers at that point, after which they can be hammered by vehicle excise duty.

I accept that point. However, let us get down to the nitty-gritty. The decision is similar to that on the 10p tax rate—I do not want to go on about that too much—because it was a tax on the poor. It was a tax on pensioners and working people and it had to be taken away quickly because all hell was let loose. Again, we are considering a tax on working-class people. If we get into the same position as we were on the 10p rate and there is another mighty fiasco, we might have to withdraw it. It does not apply till April, so we, as a Government, have a chance to put it right.

As I have said, we are considering a heavy tax on working people—and not only those in rural areas—who need the car to get to work because our transport system is not that good. It is a retrospective tax, if people want to call it that, on working people. We should look at the matter carefully. The Government argue that they will examine it—I hope that they do. I will vote with the Government, with a heavy heart, in the hope that they come up with something in the autumn statement that will give the working-class people of this country a bit of a break.

I apologise to hon. Members for rushing off after my brief speech, but I have an Adjournment debate in Westminster Hall at 4.45 pm.

I want to concentrate on amendment No. 9, which would allow a lower rate of vehicle excise duty for vehicles that are used primarily for business purposes off-road. Although I fully support giving people incentives to buy less powerful cars through higher rates of VED, there should be an exception for people who need to use the car off-road. I am thinking especially of farmers, gamekeepers, crofters and people who work in forestry. They use the car off-road and need a powerful vehicle to drive on muddy tracks to go about their business. They obviously cannot afford two cars—one for work and one to take the children to school, go to the village for shopping or tow loads on the public roads. It is therefore important to charge people in that position a lower rate of duty.

Amendment No. 9 builds on an amendment that the hon. Member for Dundee, East (Stewart Hosie) tabled in Committee, and I believe that it deals with much of the criticism that was made of the latter by restricting the exemption more to vehicles whose primary purpose is to be used off-road for business. Vehicles that are used purely for agricultural purposes are exempt from VED, but we are considering those that are also used on public roads and are therefore not exempt. The new class of exemption should be included.

Let me deal with the proposals of the hon. Member for Dundee, East. Two issues need to be tackled. The first is the need for a lower rate of fuel duty to be charged in rural areas and the second is benefits for the haulage industry. Although I would happily support a proposal that was targeted more at the haulage industry to give it help and allow it to compete on level terms with Europe, new clause 9 is too widely drawn. To help people in rural areas, we should support new clause 14, which my hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso) tabled. It is targeted at charging a lower rate for fuel in remote rural areas. To give an example, I recently paid a visit to Port Ellen on the Isle of Islay in my constituency, where fuel was selling at 15p a litre more than at Glasgow airport. Indeed, on some of the smaller islands there is always a greater difference.

Those additional costs work their way through the whole economy. We know that the price of fuel adds to the price of all other goods. High fuel prices make it more difficult to run and sustain a business in remote areas. People in those areas suffer from a triple whammy. Fuel prices are much higher than in urban areas; they have no alternative forms of public transport; and they have much further distances to travel. It would simply not be sensible for councils to subsidise bus services as an alternative, as buses would be running round with one or two passengers.

The cost to the Treasury of new clause 14 would be very small—much smaller than the cost of the amendment proposed by the hon. Member for Dundee, East—because it would apply only to a small part of the country. Cutting the price of fuel would not encourage people to drive more. People do not drive dozens of miles along twisting single-track roads because they enjoy it. They make such journeys because they have to. The car in such areas is not a luxury; it is essential. We had a meeting with the Exchequer Secretary in which she was sympathetic, and I know that the Chancellor is sympathetic, too. I urge the Government to accept our new clause.

I hope that not a single Member of the House would dispute the need to increase vehicle excise duty on engines of such a size. To that extent, the Government ought to be congratulated on listening to the Environmental Audit Committee and on increasing the VED on such vehicles. It is interesting that that is the dog that has not barked in this debate. Nobody has congratulated the Government on raising VED on future purchases, but they ought to be congratulated, because that is the right way for this country to go.

However, the hon. Member for Putney (Justine Greening), speaking for the Opposition, was completely right to say that the change is retrospective. We can have a semantic argument about exactly what that change is, but she was right that although the increase is right for decisions made going forward, it is not right that a decision someone made five or seven years ago should also be subject to such an increase. That is unfair and retrospective, as well as being ineffective, because it does not change behaviour by making anybody who is considering buying a larger vehicle think twice before they do so. That is what the increase in duty is meant to do.

When this or any previous Government have changed the rate of stamp duty, for example, which happens from time to time, has any Member suggested that the new rates should apply only to new houses? Of course not.

I very seldom disagree with my hon. Friend and I have a great deal of time for him, but he is completely wrong. We are talking about changing behaviour through the increase in VED, which is very different from stamp duty on houses. The increase is retrospective and principled, but it is not pragmatic because it will not change behaviour.

The hon. Member for Putney has won the argument—we ought to listen to that—but she has lost the solution. It is the worst possible precedent for this House to start passing taxation legislation by statutory instrument. Nothing could undermine parliamentary democracy more than that.

I would be grateful if the hon. Gentleman could say whether he supports my amendment No. 7, on the basis that it seeks to achieve the effect that he desires, but without the statutory instrument being required.

I have to confess that I have not read the hon. Gentleman’s amendment, so I am at a loss.

I should have spoken for longer.

Yes, I was interested that the hon. Gentleman did not speak to his amendment very much—indeed, I do not think that he mentioned it, and I would have been grateful to have had it brought to my attention earlier. I will go away and read his amendment afterwards, but I cannot respond now.

The hon. Lady’s solution would set the worst possible precedent. We should not start making changes to taxation by statutory instrument. We do far too much by statutory instruments as it is. Such provisions are not amendable and they do not come before the House. That is a growing and pernicious development in our democracy. A mechanism that was intended purely for implementing agreed legislation is now being used, in effect, as primary legislation. It would be a disastrous step to take a big decision such as this—albeit a right one—by statutory instrument.

The hon. Lady has won the argument, but lost the solution. The House must choose tonight between a correct but unsatisfactory solution, and trusting—or hoping—that the pre-Budget report will show that the Government have listened to what is almost a unanimous view on this point.

My hon. Friend makes a powerful point about how bad it would be to use a statutory instrument for this purpose. Is not the political reality that the extent of concern among Labour Members about the unfairness of this imposition on low-income families with older cars is such that the Government are going to have to look at the impact of motoring taxation in the round? As my hon. Friend suggests, the right way to do that is for them to come back to us in the pre-Budget report, and all Labour Members will expect our right hon. and hon. Friends on the Front Bench to do that.

My right hon. Friend is right. He used the word “expect”, but I think that there is an element of hope involved as well. However, this action must be required of the Exchequer Secretary. She might not be able to give us a categorical undertaking tonight, but I believe that she has heard hon. Members very clearly indeed. If the Government do not reconsider this matter in the pre-Budget report in the way that my right hon. Friend has suggested, the House and the people of this country will be very angry indeed. Whatever semantic arguments we might have about the meaning of “retrospective”, the truth is that the people of this country see this as an unfair retrospective tax—

rose—

I will not give way. We have had a very good debate, and I am sure that other people want to get in.

The people of this country, on whose behalf we are speaking, see this tax as retrospective and unfair, and the Government have to come back later this year and put this right.

I wish to speak to new clauses 8 and 9. First, I should like to provide some background to new clause 8. As everyone knows, the spiralling increases in fuel prices are inflationary and they are strangling economies in remote rural areas. They are driving the haulage industry to the brink and putting the most enormous strain on family budgets.

I would like to put this into context. When I tabled a similar amendment in 2005, I said that, according to the AA, the price of unleaded petrol had risen to 86p and that it had gone up by 6p a litre over the previous six months. By the time we debated this issue on 15 May this year, fuel was priced at between £1.10 and £1.30 a litre. Now, six weeks later, it costs an average of £1.32 a litre. In 2005, I said that Brent crude had reached $60 a barrel, up from an average of $50 in the previous year. In the run-up to the last pre-Budget report, we saw an average of $83.60 a barrel, with an increase of $68 forecast. In the run-up to the Budget, we saw an average of $94 a barrel, and in four of the five working days before the Budget, we saw record prices. When I drafted this speech last week, the price was $132 a barrel, and we have crashed through $140 a barrel since.

I visited Scotland recently and visited some farmers who operate combine harvesters. They used to pay 36p for diesel, but it has now gone up to 70p. It costs them about £700 to fill up their vehicles. Does the hon. Gentleman agree that we cannot wait for the pre-Budget report, and that we must act now? That is why some of these new clauses must be agreed to. We should not ignore this opportunity to seize the moment.

I agree entirely. I think there is an immediacy about this issue. When I met the hauliers who were lobbying their MPs here today, they pointed out that some of them and others involved in the protest outside would not be in business by the time of the next pre-Budget report, so the hon. Gentleman is absolutely right about the immediacy.

rose—

I will give way once more, but then I want to make some progress.

I agree that a fair degree of urgency is required; the hauliers made that abundantly clear today. However, if the hon. Gentleman’s new clause is the answer to the problem today in 2008 and if it was an answer to the problem in 2005, why was it not an answer to the problem in 2006 and 2007?

We deal with the realities as we find them and we table amending provisions when we can. I think that this proposal was the answer in 2005, 2006, 2007 and 2008 and that it will be the answer in future. I will come on to explain why later, but fundamentally we need a mechanism in place to deal with spikes—now and in the future. I believe that such a mechanism is the answer, but if the hon. Gentleman is asking me why I did not table amendments in the years he mentioned, that is an entirely different question. The answer to that has more to do with time than my interest in the subject or my ability to table the provisions.

Let me return to my opening comments. We have seen a quite catastrophic and phenomenal rise in barrel prices and prices at the pumps. Where that leaves us, according to the AA last week, is with an average diesel price that has broken through £6 a gallon. I am grateful to the European Union for its weekly oil bulletin of 26 June last week, which also sets the scene. It tells us that at 53.2 per cent., the UK has the highest total tax take on a litre of diesel anywhere in Europe.

rose—

I will give way to my hon. Friend, but then I am really going to make some progress.

My hon. Friend may recall that when we last visited this issue on 28 April, I pointed out that diesel fuel in my constituency was retailing at £1.34 a litre. It is now, eight weeks later, between £1.43 and £1.46 a litre, representing a tremendous amount of money coming from the pockets of the Western Isles to the Treasury at Westminster—and that from an area already paying the highest fuel tax in the UK.

That is absolutely right. Part of the intention behind the new clauses is precisely to help fragile economies where, for a variety of reasons, the price is highest, but it is not just the economies in fragile and remote rural areas that are struggling, and neither is it only certain industry sectors like the hauliers. Rather, we are looking at primary food producers in agriculture and fish, the tourist trade in parts of the country and, because of the inflationary effects, the household incomes of every family in the country—not just as they fill up their cars with petrol or diesel, but as they buy anything, at any time, in any shop.

Now that I have got to the second paragraph of my speech, I am going to make some real progress. At an average of 132p a litre, diesel is now about 35p more expensive than it was only a year ago. Almost half the rise—according the AA, about 14p—has occurred between mid-April and mid-June. It is precisely the sort of spike that the fuel duty regulator is designed to smooth out. At an average of 132p a litre, only Norway’s average cost of 137p a litre is higher, but given that in many areas, particularly in the north of Scotland, that price was breached a long time ago, it is safe to say that in parts of the country we almost certainly have the most expensive gallon of diesel anywhere in the world. As I said, however, it is not just remote areas that are suffering; it is industry sectors of all kinds, and I am particularly grateful to the haulage industry for its support in my attempt to have the Government see sense. I am also grateful to the National Farmers Union, the Scottish Fishermen’s Federation, the Scottish Taxi Federation and many others for their support.

The Sunday Herald reported in April that out of the average £37,000 it costs to tank up a 44-tonne truck, the Government take £25,000 in tax. The same article confirmed that a typical 20-vehicle haulage business would have to make an extra £30,000 a year to cover the increase in fuel costs—and that was in addition to the extra £30,000 that businesses had had to find to cover the increased costs last year. That was in April, however, and since then there has been a price rise of 14p per litre. That example was given when the industry expected the oil price to reach $115 a barrel by midsummer. It was $132 a barrel last week, and has exceeded $140 a barrel since.

Here is the rub: there is no indication that the rises we have seen will stop. Arjun Murti, the Goldman Sachs oil analyst, predicts a super-spike taking the price to $200 a barrel. That may help to deal with the point raised by the hon. Member for Dumfries and Galloway (Mr. Brown). My attention was drawn today to an additional fuel-driven cost faced by hauliers in particular: the fuel levy on ferries on which they transport their trucks, which is having an impact on the west coast of the United Kingdom, in Wales, England and Scotland. It is affecting truckers travelling to Ireland, and no doubt elsewhere on the channel coast.

It must be right to introduce now the mechanisms that we will need to smooth out future spikes, rather than driving hauliers to the wall and families into financial meltdown, and seeing rural economies strangled by the lack of action in the Bill. Let us make no mistake: a failure to act will result in the most appalling financial troubles across the country. When the haulage firm Ramage went into administration, its adminstrators cited the high cost of fuel as a contributory factor. Families are seeing their extra monthly costs rise. It is costing nearly £30 a month more to run a single diesel car, and petrol is costing more than £46 a month more for a two-car family.

As I have said before, it is clear that remote and rural areas are struggling. In a recent debate in the Scottish Parliament, the Liberal Democrat MSP Tavish Scott spoke of the plight of one of his constituents in Brae in Shetland. Perhaps this is how the hon. Member for Taunton (Mr. Browne) should have approached his speech. Tavish Scott’s constituent told him that

“despite the fact that I car share I made a decision that I could no longer justify working in Lerwick”.

People are now questioning whether it is worth going to work. Jamie McGrigor, a Conservative MSP, said:

“Many rural industries depend on a good haulage service. Forestry, agriculture, fish farming and the food and construction industries—which deliver basic requirements—all depend on haulage, yet hauliers in Campbeltown are laying off drivers and selling their lorries.”— [Scottish Parliament Official Report, 28 May 2008; c. 9068-79.]

All those points are backed up by the various trade representatives. Phil Flanders of the Road Haulage Association has said:

“UK hauliers are struggling as never before to cope with continually rising fuel prices... a number have ceased trading and many more are in the process of cutting back the number of vehicles they operate.”

Jim McLaren of the National Farmers Union of Scotland wrote to me saying:

“The cost of fuel, a significant constituent of which is tax in the form of VAT and duty, is jeopardising the future sustainability of Scotland’s primary production and transport sectors, at the same time as exacerbating food price inflation, which is affecting every household in the country.”

The Scottish Fishermen’s Federation, contrary to some reports, is backing the fuel duty regulator. It has said:

“We add our support... Transport is of course a vital component of the fishing industry and cost increases there have applied even greater pressure, felt most acutely by the more remote fishing areas of the North West and the Northern Isles.”

Given world food price inflation and concern over future supply, this is the wrong time to put further damaging pressure on the primary food producers in fishing and agriculture.

The Federation of Small Businesses has said:

“As the largest business organisation in the country and representing over 215,000 businesses, the FSB is firmly behind the introduction of any mechanism which automatically uses extra tax revenues generated by high oil prices to reduce prices at the pumps.”

Even the Scottish Taxi Federation has written to me, not only to express its concern about the impact of rising fuel costs on the taxi trade but to

“reiterate the federation’s full support for this amendment to the Finance Bill to introduce a Fuel Duty Regulator.”

Its secretary, Bill Macintosh, made the point that taxi drivers’ average monthly bills have increased by about £160 over a very short period. He said that

“with fuel prices rising on a daily basis... we need help immediately.”

The Government must react positively to that demand for an immediate response, and that is what new clause 8 is designed to deliver.

The briefing I received from the Road Haulage Association this afternoon makes it clear that it sees the fuel duty regulator as a short-term fix at best, and that what it is looking for in the medium to long term is an essential users’ rebate. That would be easy to introduce. There is the precedent of bus operators getting duty rebates. Does the hon. Gentleman agree that that would be simple, targeted and very cheap, and that if all the parties in this House were to work together we should be able to devise some mechanism for driving this forward?

I know that the long-term objective of the haulage industry is for there to be a Europe-wide professional users’ rate, and there is a lot of merit in that. There may be an opportunity to put in place an essential user rebate, and my new clause 9 hints at that with the suggestion that it might be done by using the hauliers’ “O” operating licence. Therefore, I have a great deal of support for that in the long term, but the hauliers are also telling me—and also, I am sure, other hon. Members of all parties—that they need help now. Most importantly of all, we need to agree the principle that a Government who take 60 per cent. of the price at the pump, and who are taking a massive windfall from the North sea, must put something back when those who use the fuel need help and need it now.

In new clause 8, proposed new subsection (1AA) would oblige the Chancellor at every Budget and pre-Budget report to provide both a forecast for oil prices and his anticipated yield from fuel duty and VAT from fuel. If we are going to use these forecasts, it is important that they are laid down in statute. Proposed new subsection (1AB) would oblige him through statutory instrument to reduce the level of duty in direct proportion to the value of the increase accounted for by VAT. I dislike in principle statutory instruments and regulation, too, but my overwhelming priority is that something must be done quickly, and this is the best mechanism by which to achieve that. Proposed new subsection (1AC) would ensure that when the price of a barrel of oil increases above the forecast, the next indexed fuel duty increase is automatically disapplied. That is important, because when the price goes up we can no longer have normal indexed duty increases withheld as a political whim; this must be an automatic consequence of a rise in fuel prices.

I have read all the debates we have had over the past few years to determine how the Government might oppose the measure. They may well argue that VAT yield is static—that as more VAT is taken from fuel, there is a reduction elsewhere. That argument suggests that no one eats into their savings or increases their debt, and it flies in the face of the evidence from the retail sector published by the Office for National Statistics on 20 June that sales increased in May by 3.5 per cent. The Government may also argue that yield from fuel sales is down because the price has risen, but the evidence from the Petrol Retailers Association is that there was only a very modest drop in sales earlier this year when the price rose dramatically, almost exclusively “from morning domestic sales”, not from commercial trade or afternoon or evening business.

It is, I suspect, more accurate to claim that there is a long-term trend of increasing demand for total retail motor fuels. I shall refer briefly to a Department for Business, Enterprise and Regulatory Reform table on oil and oil products of December 2007. It shows that diesel sales increased in every quarter that is listed for 2007—the first three quarters—from 5.14 million tonnes to 5.32 million tonnes to 5.5 million tonnes. There is also a 7.8 per cent. increase between quarter three of 2007 and quarter three of 2006. Even taking into consideration the reduction in petrol sales as people move to diesel, there is still a net increase in diesel demand. At the start of those three quarters, diesel was 92p a litre, and it ended at 97p a litre—a 5 per cent.-plus increase, or twice the annual rate of inflation, in only nine months. Those who argue that there is elasticity in fuel demand should look at the figures from the Department for Business, Enterprise and Regulatory Reform. I argue that it is fundamentally inelastic. However, notwithstanding that an elastic situation can become inelastic over time, it is clear that there is an offshore windfall. Indeed, the Chancellor confirmed in his recent letter to my right hon. Friend the Member for Banff and Buchan (Mr. Salmond) that rising fuel costs

“do generate greater receipts from North Sea Corporation Tax and PRT.”

The inelasticity can be explained for rural areas because there is no other way to travel. Does the hon. Gentleman agree that it is that very dependence on diesel and petrol-powered vehicles in rural areas that makes people feel impotent in the face of these increases? Faced with a choice between driving less or reducing their expenditure on other things, they are forced to choose the latter.

The hon. Gentleman is right and his comments mirror those of his colleague in the Scottish Parliament, Tavish Scott, who explained that people are questioning whether they can afford to go to work. Perhaps the hon. Gentleman should have a word with his Front Benchers, as his sensible approach runs counter to some of the comments that we heard earlier.

Further to the point made by the hon. Member for Montgomeryshire (Lembit Öpik), households generally have a finite amount of money to spend. The argument may come from the Front Bench this evening that although additional income for the Treasury could be achieved through the increase in VAT, other sources of income are falling. There is great support on both sides of the House for the fuel duty regulator, but can the hon. Member for Dundee, East (Stewart Hosie) tell the House honestly that the figures add up, because that is vital?

I agree, and I used the figures from the Department for Business, Enterprise and Regulatory Reform deliberately to show that over the first three quarters of 2007—the most up-to-date information that I have—there was a net increase in motor fuel sales across the board, notwithstanding the transfer from petrol to diesel, at a time when the price went up by twice the annual rate of inflation. Whether the fuel duty reduction comes from the onshore VAT windfall or the offshore North sea windfall, we can be certain that, in terms of total tax yield, this proposal is fiscally neutral.

The final criticism which the Government may make is that this is a one-way regulator. In the current climate, and with the very real fear of a “super-spike” in fuel costs, it is only right that my new clause addresses that. But there is nothing in new clause 8 to stop this Government introducing a claw-back measure to guarantee a minimum level of duty yield as per their forecast. They could do that in the pre-Budget report in the autumn at the same time as the first forecast required by the new clause.

There is no good reason why the principle of a fuel duty regulator should not apply, and very many reasons why it should. It would help the hard-pressed families who are paying £30 or £40 a month more for fuel for their cars. It would help remote and rural communities and the fishing and farming sectors, and protect the haulage industry, which keeps this country moving. It would also act as a measure to tackle inflation. Diverse sectors across the UK—not only from Scotland—have come together to back this measure, and I urge the House to do the same.

I rise to oppose new clause 3. I am afraid to say that it is all too typical of the unprincipled politicking of the modern Conservative party, which has abandoned all its pretences at trying to claim the green agenda. Indeed, it repudiates the Conservative Chairman of the Select Committee on Environmental Audit, under whose chairmanship it produced a report in February that begged the Treasury to increase taxes on motoring. It stated clearly:

“Some motoring organisations have begun calling for the next planned increase in fuel duty to be scrapped”

but said that the Treasury

“must not defer its planned rises in fuel duty.”

The report gives the rationale behind its criticism of the Government and the Treasury. On page 11, it states:

“By 2009–10, main fuel duty rates will…remain 11 per cent. lower in real terms than they were in 1999.”

Lower down that page, in paragraph 19, it warns that

“road traffic emissions in England went up by 12 per cent. between 1997 and 2006”,

and it links those emissions to that previous statement. And, as the report makes very clear on page 12:

“The forthcoming Budget is a test of the Treasury’s environmental credibility: it must not defer its planned rises in fuel duty.”

It might have been a test of the Treasury’s environmental credibility, and my colleagues passed with flying colours. As a test of the credibility of Conservative policies, it showed them to be woefully inadequate.

In a previous report, the Committee stated:

“The Government should increase the differentials within Vehicle Excise Duty between the most and least efficient cars”.

I think that that is what the hon. Member for Putney (Justine Greening) would call eco-stealth taxes. The Conservative MPs on the Committee, who are notable for their absence today, included the hon. Members for Ruislip-Northwood (Mr. Hurd), for The Wrekin (Mark Pritchard), for Beverley and Holderness (Mr. Stuart), for Wantage (Mr. Vaizey), for Bridgwater (Mr. Liddell-Grainger) and for Bexhill and Battle (Gregory Barker) and, of course, the Chairman, the hon. Member for South Suffolk (Mr. Yeo). All those Conservative MPs signed up and, to embellish the green credentials of their party, ensured that that unanimous report argued strongly for higher fuel duties.

The first report that I referred to made an interesting point that reflects on the debate when it asked the Treasury to consider ways to put the formulation of environmental issues outside the arena of electoral politics to some degree. Why, I wonder? Was it because the 2007 report of the quality of life policy group, co-chaired by Zac Goldsmith and the right hon. Member for Suffolk, Coastal (Mr. Gummer), stated their proposals on vehicle excise duty very clearly? Their report said that

“we propose increasing the VED differential between the top and bottom bands of emissions performance”

and that that change was

“aimed primarily at influencing the used car market”.

The synthetic concern about backdating that we hear from Conservative Front Benchers is contradicted in the document that they paraded before Friends of the Earth and other green groups, which specifically said that the party had to aim primarily at the used car market. The document also proposed a new graded purchase tax, which would put 27.5 per cent. purchase tax and VAT on some larger cars, second hand or not.

Things have not changed so much since the Committee’s report, which was produced in February. It reflected a considerable increase in fuel prices, but since February those prices have gone up even further. Are the Conservatives rowing back to take account of those prices, as some are urging? Far from it. This morning, on the BBC, the Chair of the Select Committee, the hon. Member for South Suffolk, was asked a direct question by Mr. Naughtie, who said:

“What about the back-dating which is very controversial”?

The hon. Gentleman replied:

“It is controversial; it is not of course back-dating in the traditional sense”,

but, he said,

“3 times as many people buy a second hand car as buy a new car so if we are going to use bigger differentials in Vehicle Excise Duty to influence our purchasing decisions they have to apply to existing second hand cars as well as to new ones”.

Over the years that I have been in the House, I have always known that the hon. Member for Edinburgh, South (Nigel Griffiths) will leap up at the last minute to defend the indefensible if he needs to do that to defend his party. That is what he tried to do tonight. I wonder where he has been. His argument about the views of individual Conservative Members is irrelevant to the anger that the backdating of vehicle excise duty rises has caused. Does he go to Edinburgh and listen to his constituents? Does he understand the anger that has been caused?

Ministers would be wise to accept the advice of my hon. Friend the Member for Putney (Justine Greening) and say today that they will not pursue the policy. There are certain trigger points that anger members of the public, our electorate. Sometimes they are irrelevant or extraordinary, but the backdating of the VED has caused anger. It is regressive, and many people who have decided to buy a particular car will lose thousands of pounds in the second-hand value of that car.

The hon. Member for Bury, North (Mr. Chaytor) mentioned stamp duty, but that was the wrong example. It would have worked as an example only if somebody had purchased a house and then the Government had said, “By the way, we’re backdating the stamp duty. You now owe us another £150,000 for the house that you have already bought.” People make decisions about what kind of car to buy on the basis of the cost at the time when they buy it. To change the ground rules is utterly wrong, which is why the vast majority of Labour Members, although not the hon. Member for Edinburgh, South, seem to agree with us on the spirit of the new clause, if not its details.

Does the hon. Gentleman agree that the vehicle excise duty is Labour’s poll tax on wheels? It is an annual charge, and it hits the poor hardest.

Absolutely. I agree entirely. It is not only regressive, but like all regressive taxation, it particularly hurts those who can least afford it.

My constituency is one of the most sparsely populated in England, and is on the Scottish border. Many of my constituents are not highly paid by any means, and they need their cars because there is virtually no public transport available. They have to travel many miles to find work, because work in agriculture and forestry has declined. It is common for people to drive 80 to 100 miles a day to get to and from work. Some work shifts, some are self-employed and some have to work weekends, so it would be totally impractical for them to use public transport.

People in my constituency are already taking a huge hit on fuel bills, and we have heard from hon. Members from Scotland that the situation is the same there, with fuel priced very highly. In addition, the decisions that those people must take about what kind of car to buy has been thrown into complete confusion because of the threatened change to VED. Some models of second-hand car that cost £10,000 a few months ago would be worth little more than scrap value now. People have little hope of part-exchanging a car like that for a new one of the type that the Government want them to buy.

People were encouraged to buy diesel cards because diesel was cheaper and gave more miles to the gallon. That was supposed to be a good thing to do, but it turns out that they would have been better advised to buy a petrol car.

The proposal affects women in particular, and I am surprised that the Exchequer Secretary to the Treasury is so unsympathetic to our arguments. Many women in my constituency work part time: they do 16 hours a week, or a few more, but many are having to give that up. They either cannot afford the fuel, or the need to sell one of the family vehicles means that they no longer have access to a car. Those women will then be trapped at home and possibly forced to live on benefits.

So far in the debate, there has been little discussion of another problem that people in rural areas suffer—the cost of kerosene heating oil. People in country areas do not get natural gas: we have electricity or oil, or we buy gas in cylinders. The prices of cylinder gas and kerosene have risen by more than the price of electricity and town or natural gas. The rises are huge: heating oil now costs more than 60p a litre, which means that 1,000 litres cost more than £600.

Those rises come on top of the Government’s VED decision. From the Exchequer Secretary’s demeanour, I do not think that she is inclined to listen to me, but I urge her to announce that she will not go ahead with the change. If she were to do so, she would reduce the anger that many people across the country feel.

We are all aware of the seriousness of the oil price crisis, which affects every individual, household and business sector in the country. I do not take that lightly, but some hon. Members do not appear to understand that the problem will not go away. We have reached a critical point in history, where global demand for oil exceeds supply. That is the background to this debate, but some hon. Members seem to want to ignore or forget that.

The only solution to all the complex issues with which we are grappling—such as variable VED and the fuel duty rise planned for October—is to increase the efficiency with which we use oil and all the other fossil fuels. Any political party that ignores that, or which rejects moves to increase that efficiency, is deceiving itself and the electorate.

I was delighted that my hon. Friend the Member for Edinburgh, South (Nigel Griffiths) was so critical of Opposition Front-Bench Members. Their amendment on VED has left them exposed as blatant opportunists. It has blown out of the water any shred of credibility that they might hope to gain in respect of their policies on the environment, transport and energy. I was also delighted to hear the hon. Member for Taunton (Mr. Browne) demolish the case put by the Opposition Front-Bench spokeswoman—at least until he admitted that he agreed that the VED change should not apply to the existing fleet of vehicles.

I turn now to the question of retrospectivity. The VED proposal is not a retrospective, as it will come into force for the first time next year. The changes to the bands are retrospective, but such changes have been implemented in exactly the same way since they were first introduced in 1999.

I accept that people are worried about the resale values of vehicles in the second-hand market. However, when motorists change their vehicles—as most do every two or three years—what matters to them is the difference in the cost of doing so. That means that if the value of a 1994 vehicle falls, so will the value of the 1996 vehicle that a person may wish to change up to. It is the cost of changing vehicles that really matters.

Of course, what has driven the fall in resale values already is nothing to do with the variable VED that the Government propose for next year; it is entirely to do with the quadrupling of the oil price over the past three years. That is concentrating the minds of motorists, and it is already changing their motoring habits and their choice of vehicle. So the principle that underlies the change to VED is absolutely right, and I congratulate the Government on having the courage to make such a radical change. My only criticism is that it would have been helpful both to have introduced the change before and if the Treasury had shown a little more urgency over the past 11 years in taking on board the need for such changes to environmental taxes.

It strikes me from listening to the debate and the debate outside the House that many of those who seem to be fundamentally opposed to both the principle and the detail have not looked at the detail of the proposals. They have not looked at the way in which the current bands will be transformed into the new range of 13 bands in 2009-10. It is absurd to say that this is a massive attack on the low-income households. Some 10 million vehicles will not be affected by the change, or 10 million vehicles will pay less tax, and the drivers of those 10 million vehicles are overwhelmingly people on the lowest incomes. Vehicles registered before March 2001, which are overwhelmingly owned by low-income families, will face no change at all, because they are not affected by the enhanced variable regime. I urge my Labour colleagues, some of whom ought to know better, to look at what the Government propose before making sweeping accusations about the impact of the changes.

The principle of variable excise duty is fair, efficient and beneficial to the environment. It concentrates our minds on our individual responsibility to respond to the challenges of climate change, on the cost of motoring and on the efficiency with which we use fossil fuels. Yes, the tax changes are about changing behaviour. They will change behaviour; they have already started to do so in a small way over the past nine years. Of course, all taxes are about changing behaviour. That is one of the key purposes the tax system.

I am very interested to hear the hon. Gentleman refer to changing behaviour, but what will he say to the thousands of people who made their choice six or seven years ago? He is suggesting that they can somehow change their behaviour today when they made the decision seven years ago. We are simply saying that retrospective taxation should not be applied to something that relates to decisions that people have already taken and cannot change.

People might look at the figures that the Government have published in the Red Book, which tell them exactly the decrease or increase in the variable bands that will come into force next year. They will see that 10 million vehicles will either get a tax cut or face no change, and they will find that, for the overwhelming majority of the 7.7 million vehicles that will experience an increase, it will be absolutely marginal in respect of both the present rate of VED and the overall cost of running a vehicle.

I have discussed the issue with the Minister on a number of occasions and explained that I thought that she was doing absolutely the right thing, but I stressed that that some points of detail could be improved. I hope that those points of detail will be taken on board before we finalise the arrangements of next year’s Budget. Of course, if anyone takes the trouble to look at the table in the Red Book, it is pretty clear that the impact of next year’s VED increase is only really a matter of concern for two of the new bands: new band J and new band K. The 10 lowest bands will experience a tax reduction, no change or an increase of about £15 to £25—a comparatively modest percentage increase. There are, however, issues about the vehicles that will be in VED band J and K next year, because some of them will incur a one-year increase of £90, which is almost a 30 per cent. increase.

Fifty per cent.

Fifty per cent. I stand corrected.

That issue needs to be considered. Had the Treasury looked at the matter in more detail earlier, we might have phased in the increases year on year, and that would have given a stronger and more consistent signal to motorists.

The hon. Gentleman seems to be almost unaware of what his Government are proposing. First, the rises that he discusses are quite stiff, although they are nothing compared with the rises that people who are currently in band F will face when they go up to bands L or M by 2010. Then, they will face rises of £245. Secondly, he is probably not aware of the transition period, because he has demonstrated what I said originally—that the period was not mentioned at all. The Government are planning that people should be in transition across two years, precisely because they know how much the measure will hurt them.

I am looking at what the Government propose and reading from the chart in the Red Book. It is absolutely clear that new band J vehicles, with CO₂ emissions ratings of 181 to 200 g per km, will pay £260 in 2009-10, which is a sizeable increase, but only a further £10 in 2010-11. I urge all Members who are concerned about the issue to look at the facts and at the increases.

It is true that from next year, 7.7 million will pay a higher rate, according to the Library analysis, but of those 7.7 million, the overwhelming majority will pay only a tiny—a marginal—higher rate. I return to the point that the real concern is the one-year increase next year, which is not carried through to 2010-11 to the same degree, in respect of new bands J and K.

Finally, the irony is that in respect of next year’s rate, new bands L and M will show an increase of only £15 and £40, or 4 per cent. and 10 per cent., respectively. The paradox is that under the Government’s proposals, the two highest-rated bands will pay less than the two bands lower down the scale, so there is an opportunity to make the system more progressive, fairer and more efficient. I hope that the Government will take those specific points on board.

I rise to speak to new clause 14, which stands in my name and that of several of my hon. Friends. The debate has been fascinating and wide ranging. It would be very tempting to discuss some of the topics that have been debated, but I sense that the House may prefer me to confine my remarks to the new clause, and I shall do so.

I have a slight dilemma. As always, I have come well prepared with the detail of my arguments, but it would take a little time to expose, so I shall attempt to do the bullet-point version. I hope that if I skim across the detail, the House will forgive me but understand that the detail exists.

The genesis of the new clause was in an amendment that an hon. Friend tabled some years ago. My hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) reprised it last year, and I have addressed it on a number of occasions. It is, namely, the fuel premium that is paid in remote rural areas. The premium has varied over the years—when I first looked, it was 6p or 7p, and it is now 13p or 14p. It is specific to remote rural areas, for which I have a definition; and although it is perhaps a small issue in the wider context of the debate about the impact of high fuel prices on the economy generally, for my constituents in rural areas it really is salt in the wound. I want to speak briefly about the principle and details of what I seek to achieve.

I am sure that my hon. Friend will make this point, but the issue is not only the increase in fuel prices in rural areas, but the lack of a public transport alternative. That means that people have to have their own cars and feel the full effect of the higher prices.

My hon. Friend is right on both counts: about the point that he has made and the fact that I would have made it. He has saved me that job.

The purpose of the new clause is to find a workable scheme for reducing but not eliminating the premium, to give some relief to people in remote rural areas, where, as my hon. Friend has just said, there is no alternative. In my constituency, there is a petrol station in Durness and in Tongue, which are about 50 miles—or an hour—apart. The average price of diesel on the north and west coasts is about 145p per litre; that is the scale of the problem.

In my intervention on the hon. Member for Putney (Justine Greening), I alluded to the principle behind why something should be done. If one is seeking to change people’s behaviour through taxation, people have to be able to make that change—in this case, people still have to be able to go places. In the remote areas that I am talking about, there is no capacity to make that change and there will not be. As my hon. Friend the Member for Orkney and Shetland (Mr. Carmichael) pointed out, in many such areas the car is by far the most environmentally friendly option—far better than buses carrying nothing but fresh air.

The second point is that, broadly speaking, taxation should be equitable. It is clearly inequitable that in an area where there is no choice the tax should be higher, by virtue of the VAT element, than it is in other areas of the country. It is perverse that fuel costs are lower in many areas with public transport than in many areas where there is none.

I support what my hon. Friend is saying and his new clause. Does he accept that the issue is not only fairness in taxation, but the impact that the disparity has on the people whom it affects? In his constituency and mine, in the highlands, people’s incomes are much lower than in the rest of the country. However, we ask those people to spend an awful lot more on their fuel and pay more tax on it, and fuel represents a greater share of their disposable income in the first place. The hardship caused is more real in such communities than almost anywhere else in the country.

My hon. Friend makes a good point and saves me the trouble of making it myself; I shall move on.

Interestingly, the 30 per cent. rise in fuel costs across the country has resulted in a measurable percentage drop in car use. The theory of the impact of higher price has been tested. However, the interesting thing is that those drops are not reflected in remote rural areas because there people have no choice.

I have discussed the principle. As for the detail, I should say that I am grateful to Treasury Ministers. Until a year ago, whenever I raised this issue—as a subject for a debate or even as an amendment—I was totally stonewalled. However, the Chancellor expressed his sympathy in the Treasury Committee and, in answer to my hon. Friend the Member for Argyll and Bute (Mr. Reid), the Financial Secretary, on behalf of the Exchequer Secretary, expressed sympathy and a desire to look at the evidence. As a result, I wrote a paper, which I have circulated and sent to the Chancellor; I hope that the relevant spokesmen for all the parties have received it, because I arranged for it to be sent to them.

The paper points out that first there needs to be a workable definition of “remote rural”. My scheme is based on Scotland because I was able to get all the data on Scotland that I needed. I believe that similar data are available for England and Wales, but I do not have them. Scottish national statistics include what is called the eightfold urban-rural classification, which is shown on a very helpful map with very helpful definitions. For the example set out in my paper, I have chosen band 1, which covers about 2 and a bit per cent. of the population, and between a third and one half of the Scottish land mass. Other classifications could be used, depending on how exactly one wanted to target the scheme.

In previous, similar debates, we have had a bit of fun on the issue of definitions, not least with the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander), but the eightfold model is very good because it includes a total of only 150,000 people in the most remote parts. The definition was a problem in the past, but the definition that we are considering is very good. That is why we will support new clause 14 tonight.

I am grateful to the hon. Gentleman for making that point, and for clearly having read the paper that I sent him. The area is definable, but one needs a simple method by which the tax rebate can be passed through the system. I have discarded the concept of designating individuals—the proposal that was put forward last year—and the concept of designating vehicles. I instead suggest that we simply designate the retail filling station. That could be done very simply, because all the retail filling stations that one would want to designate clearly fall into the area in question. I am not concerned about the fact that a passing millionaire might benefit; if they happen to be passing through that part of the world, good luck to them. I do not think that we need make any difference according to who is in the area, whether tourist, visiting businessman or resident. The scheme works well, regardless.

If we agree that retail petrol stations should be designated, all that is required is a robust system of ensuring that the rebate is passed to the consumer, and is accounted for in a way that means that there is no fraud. My paper basically uses the VAT system of Her Majesty’s Revenue and Customs, and the supply chain. I shall not go into further detail, but ask the House to take it from me that the system provides for a robust audit, and will ensure that the rebate arrives at the pump, and does not have to be paid for out of the pocket of the motorist, who is to benefit from it.

The major criticism that the Treasury has always made of the scheme, and the criticism that the Chancellor of the Exchequer raised in the Treasury Committee recently, was on the issue of cross-border exploitation. In other words, the fear is that somebody might cross a border to get cheaper fuel. That simply does not apply, because the premium is not being got rid of; it is simply being reduced. That provides no incentive for anybody to cross a border who was not already intending to cross it. It does give those who are thinking of crossing a border an incentive to recalculate and, as a result, not cross it.

In subsection (5)(g) of new clause 14, it is suggested that once the Treasury had agreed to the scheme, it might care to devolve it, and permit the Welsh Assembly and Scottish Parliament to operate it. There is clearly a difference of view on the importance of the scheme in different areas. I would encourage a UK-wide scheme, but if the Treasury would like to give us the ability to run the scheme in Scotland, I would certainly encourage that, too.

I hope that the hon. Gentleman remembers that Northern Ireland is also part of the United Kingdom.

Indeed I most certainly do, but the advice that I had when framing this was not to include Northern Ireland, for whatever reason—I am not entirely clear.

If there is any disappointment on my part, it is that I have not managed to see the hon. Gentleman’s paper. Despite what other Members may think, I have some extremely remote rural areas in my constituency. There are locations in the highlands and islands where people visiting hospital in the central belt are given special payments, but people in my constituency in the extreme south-west of Scotland travel even longer distances and do not qualify for that kind of payment. That is why remote rural areas need to be tightly defined. I suspect that parts of my locality may not be included in his document, but I would be delighted if they were.

I am delighted to tell the hon. Gentleman that according to the colourful map that I possess, parts of his constituency are included, while small parts of mine, and indeed of his, are not. The detail was published by the Scottish Executive; they are robust figures, and I ask him to take my word for that.

There is a strong case for righting an obvious wrong. New clause 14 would permit that to be done, and when the appropriate moment comes I would like to commend it to the House.

Given the time constraints, I shall confine my remarks to new clause 3 on vehicle excise duty.

The Government propose to make changes to vehicle excise duty as from the Finance Act 2009, a year hence. It is right that they consult on that proposal, and that is happening. My views on the way forward are fairly well known. I think that the Government need to reconsider the VED proposals—I am fairly confident that they will—in the context of the overall tax system and the part that green taxes play in that matrix. That point was well made by my hon. Friend the Member for Birmingham, Northfield (Richard Burden).

We need to consider what green taxes are. There has been a rather glib assumption that we are all talking about the same thing, and I am not sure that that is the case. Green taxes have a role to play in changing behaviour. The VED proposals that are on the table and out for consultation will have an effect on changing behaviour, but I am not sure that it is an effect that I would always wish to see. The proposals will, if implemented, lead to lower second-hand values for vehicles. That might mean, paradoxically, that an owner of such a vehicle, which might by next year be up to eight years old, may keep the vehicle instead of trading it in because they cannot afford to change it. The proposals might change behaviour as regards the earlier scrapping of vehicles that entered the fleet between March 2001 and the Finance Act changes in 2009. In the medium term a car might be scrapped when it is, say, 12 years old, because the VED changes would make it less economical to run than if they had not been introduced.

There may also be a change in behaviour that is exemplified by my mate, Steve Smith, who runs a 1990 Ford Granada. Some hon. Members will remember those—they are a right boat of a car. Steve is saying to me, “If these vehicle excise duty changes go through, because I have got a pre-2001 car I think I might just keep it a bit longer even though I know it’s causing pollution.” Another effect that the proposals would have in changing behaviour is that they would devalue the currency of and support for green taxes, which would be rather undesirable.

An aspect of green taxes that has not been mentioned is the “polluter pays” principle, which we already have indirectly through the emissions trading scheme. If an industrial plant pollutes a lot, it has to pay more for its carbon dioxide allowances through the European emissions trading scheme, and those prices will be ratcheted up in the future. That is a green tax, made on the “polluter pays” principle. Those who have been driving vehicles that pollute more, such as private motor cars or company cars, have—sometimes in all innocence—polluted our atmosphere, contributed to climate change and contributed to greater Government expenditure on addressing the effects of climate change.

For example, quite laudably, the Government have doubled spending on flood defences—both inland and coastal sea defences. One of the reasons that such increased expenditure is needed is that the climate has changed because it has been polluted, and it has, in part, been polluted by those who have, for the past seven years or more—and I suspect almost every Member is guilty in this regard—been driving polluting vehicles. The Government have to spend more money. We are going to have to spend more money on things such as reservoirs, and we have started to. The Government are spending more money on medical research because we are getting diseases such as malaria because of the changed climate. The Government are spending more money on biodiversity research, and on trying to prop it up—it is under considerable stress and pressure because of the pollution that has led to climate change.

It is not only a question of changing future behaviour with green taxes—desirable though that is—but a question of the “polluter pays” principle and the price that we have to pay as a society, often refracted through the medium of taxation, for tackling the effects of climate change. Research on plant biology and the sort of crops that we grow in this country has to be carried out. We need research on the re-engineering of our railways and roads. That is already under way and it will become a lot more necessary as the climate continues to change. Climate change causes changes in temperature, which means that such re-engineering is necessary, and it is driven, in part, by the pollution caused by people driving around in these cars.

I am not at all convinced by the Conservative position on new clause 3. There are problems with its technicalities—its need for a statutory instrument—to which my hon. Friend the Member for Stoke-on-Trent, Central (Mark Fisher) so ably adverted. I do not like the technicalities. Moreover, the suggestion that the current proposals, which I hope the Government will reconsider, are in some way a stealth tax is one of the stupidest criticisms I have ever heard, given that vehicle excise duty is one of the few taxes where people get a bit of paper through their letterbox in advance, which says, “This is what the tax will be if you undertake this behaviour.” It cannot be a stealth tax. I do not like the idea of stealth taxes anyway, but that really is a silly criticism of vehicle excise duty, of all things.

Although I find the hand-wringing of the Conservatives and their new-found concern for the poor heartening on one level, I hope that the hon. Member for Putney (Justine Greening) will forgive me when I say that I am rather suspicious about it. It seems rather opportunistic in this context. An early-day motion was introduced by my hon. Friend the Member for Blyth Valley (Mr. Campbell). I understand—and I stand to be corrected on the figures—that there are 69 signatories, 12 of whom are Conservatives. That is an example of why I am somewhat suspicious of their new-found concern for the poor.

We will see how many Conservative and Labour Members go through on our side compared to his.

I am quite confident that the Government will have a majority because the wording of new clause 3 does not address the issue at all, and because there is plenty of time for the Chancellor to reconsider.

May I draw the hon. Gentleman’s attention to the fact that some Members—from all parties—do not sign early-day motions on principle, preferring instead to put the effort into legislation. An early-day motion, as the hon. Gentleman is well aware, is merely a statement, and some hon. Members prefer to campaign and make arguments in the House, rather than sign a piece of paper that does not have much thought behind it. I am not decrying early-day motions, but please do not say that because someone has not signed one, they do not care. That is hardly a fair statement and the hon. Gentleman knows it.

Again, I would have more sympathy with that critique if there had been an average attendance of Conservative Back Benchers that even approached 12 this afternoon. The hon. Lady’s argument does not hold good. I stand to be corrected, but I have not noticed any Conservative Member tabling an amendment that sets out exactly what the Conservative party believes we ought to do about vehicle excise duty. Conservative Members have neither set out their policies nor tabled an amendment, so we do not know what their policies are. It is all very well their saying that they do not like the retrospection, that we are discussing a stealth tax and that they do not like this, that and the other. I have sympathy with that position, but they do not present their policies when they have every opportunity to do that. They simply do not avail themselves of it.

I emphasise to my hon. Friends on the Treasury Bench that I hope that the Chancellor reconsiders, but that he does so carefully and is not stampeded by some of the siren voices around us. The subject is complex and needs to be considered in the round, in the context of not only what we are pleased to call green taxes, but the overall structure of taxes in the United Kingdom, because if we lower one tax, we must raise another.

I shall concentrate on new clauses 8 and 9, which Scottish National party and Plaid Cymru Members tabled.

As ever, the hon. Member for Wolverhampton, South-West (Rob Marris) made an interesting contribution. There is a danger that some Government policies that we have discussed today will give green taxes a bad name and could undermine the necessary shift towards environmental taxation, which must be supported because of the “polluter pays” principle that the hon. Gentleman mentioned. The hon. Member for South Thanet (Dr. Ladyman) has an interesting article in Progress. He is a Labour Member who, as a former Transport Minister, should know about such things. He makes powerful points and supports our proposal for a fuel duty regulator.

There are three general reasons for needing a moderating mechanism for fuel duty. First, the unprecedented volatility in the price of oil has far-reaching social and economic consequences, and we need a mechanism to dampen the peaks and troughs. Secondly, environmental taxes must be linked to clear environmental criteria; otherwise the public will believe that they are simply a revenue-raising mechanism, and that undermines the broader importance of environmental taxation. Thirdly, surges in fuel prices disproportionately hit some sectors of the economy, some sections of the community and some parts of the country disproportionately that need and deserve Government protection. I shall consider each item briefly.

Volatility is the catalyst for the debate, as it was at the beginning of the decade, when there were also fuel protests. The oil price is historically high. It is the second oil price shock and I think that it is qualitatively different from the first because, if we have not yet reached peak oil—the moment when conventional oil production goes into irreversible decline—we are near the summit. After 1973, non-OPEC countries could expand exploration and production in response to the oil price surge. That eventually broke the power of OPEC and led to a collapse in the oil price in the mid-1980s. We are in a different position now. The growth of the emerging economies, especially that of China, has driven the oil price up in terms of demand, while the supply side is totally different from what it was. Non-OPEC conventional oil production is already in irreversible decline. The North sea may be a special case—perhaps Government policies and tax hold back production there. We will be in a position whereby OPEC has a far stronger grip on the oil market than before. From what we know of demand, OPEC will be able to hold up oil prices in the long term.

There are some counter-arguments about the lack of investment in refining. Some refining capacity will come on stream in India, Sri Lanka and the middle east. That will have some effect. There are discussions about the long-term prospects of tar sands, oil shale and even coal oil, but most people accept that we are in a period of high oil prices and that we will remain there, certainly until alternative fuels and technologies reach maturity—at least 20 years away. The fundamental driver is geological. Supplies are finite and they are running out, which is inevitable. That is the position that we are in.