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Fuel Prices

Volume 523: debated on Tuesday 15 February 2011

Motion made, and Question proposed, That the sitting be now adjourned.—(Mr Dunne.)

Good morning, Mr Turner, and I offer a warm welcome to what appears to be a very well attended debate. I am delighted to have secured this debate, and I am particularly pleased about its timing, which is before the Budget on 23 March.

This debate is timely, because it examines the impact of fuel duty, particularly in remote rural communities such as those in North Yorkshire. I will just set the scene by outlining the prices as of yesterday, 14 February 2011. People would be hard pressed to buy unleaded petrol in Thirsk, Malton or Filey for less than £1.30 a litre, and they would be hard pressed to buy a litre of diesel for less than £1.36 a litre.

I want to spend some time outlining the impact of these prices on rural communities, and I also want to set out why I fear that the diesel duty differential is affecting rural communities so harshly. Finally, I want to discuss the options to address this issue.

It is no secret that oil prices have reached a record high—barrel prices have reached $100. The fuel duty and VAT element of petrol prices both impact on drivers and as many people regard those elements as a form of double taxation, their effect on petrol prices is highly inflationary. It is generally thought that 20% of the running costs of a truck are accounted for by the cost of fuel duty at this time.

There is a high dependence on cars in rural areas, where we have limited public transport and where the car is a necessity for many people, particularly the elderly, those on fixed incomes and those with young families. In the words of the AA, in rural areas those on lower incomes are already being priced out of the market.

I congratulate my hon. Friend on securing this extremely important debate. I represent a rural area myself. Does she agree that there are so few petrol stations in rural areas that the existing rural petrol stations can charge much higher prices than petrol stations in towns?

The problem is that the sale of fuel in rural areas tends to be less per vehicle. I have learned that people tend to “tank up” for two or three weeks at a time. That has an impact, as rural petrol stations do not face the competition for customers that exists in urban areas.

A particular concern for North Yorkshire is that we have had extremely adverse weather this winter, particularly in November and December, and in addition we have a particular reliance on 4x4 vehicles. I want to declare an interest, in that I run a partial 4x4 vehicle to ensure that I can access parts of my constituency that I would otherwise be unable to reach. We know that 4x4 vehicles are more fuel-efficient than they were in the past. However, for the reasons that I have given, diesel prices at the petrol pump are higher than they were in the past.

In preparing for this debate, I was surprised by diesel prices in the UK. I had understood that they were the second highest in Europe. In fact, the helpful note provided by the Library for this debate shows that the UK has the highest diesel prices in the EU, despite a pre-tax price that is among the lowest in the EU. The differences in diesel duty rates in EU countries are incredibly stark compared with those for petrol. In some member states, where there are lower diesel duty rates, the diesel discount is nearly 50%. By contrast, the diesel duty rate in the UK is 18p a litre, or 47%, higher than in any other EU country and more than 25p, or 80%, above the simple average for the other 26 member states. It is shocking that the higher cost is passed on to those of us who live in rural areas.

This is a very important subject, which is shown by the number of hon. Members attending this debate. In Northern Ireland, the rise in duty on fuel is obviously a major concern, given that we have a land border. The rise in duty causes major difficulty for all our constituents. However, I am sure that she will have seen reports in the press today that the EU may try to stop the duty and the VAT on fuel from being reduced. I am sure that that is a major concern for her constituents, as it is for mine.

When the Minister responds to the debate, he may want to touch on that issue. Also, when I come to put my case for a rural rebate, I will acknowledge that there might be problems with regard to the EU directive in this sector.

I wonder whether my hon. Friend has examined the impact of rising fuel prices on micro-businesses. In our rural communities, micro-businesses are key, and the Federation of Small Businesses has estimated that rising prices will cost each one of these businesses, which are already sorely pressed, an extra £2,000 every six months.

Some 6,000 small businesses in Thirsk, Malton and Filey will be affected, and I congratulate the FSB on its excellent campaign.

The impact on farmers—across north Yorkshire, farming is often the main business, and it certainly is in my constituency—of rising fuel prices has been catastrophic. That issue has pushed up the cost of producing livestock and the cost of taking livestock to market. Moreover, for those who train racehorses across North Yorkshire, many of whom are based in Thirsk and Malton, rising fuel prices have pushed up the cost of feeding the horses and the cost of transporting horses and jockeys to races.

As the hon. Lady has said, rural communities in particular are suffering, and the area that I represent, which is very much a rural community, is one of those that has suffered most. Does she agree that concerns have been expressed during the past few months, particularly since Christmas, that some retailers were taking advantage of the situation in relation to the price increase? And does she also agree that there is perhaps a role for Government in relation to monitoring, controlling and regulating that situation?

I am mindful of the point made by the hon. Member for Upper Bann (David Simpson) about the land border between Northern Ireland and southern Ireland. In the European Union, the dream place to live as far as fuel duty is concerned is Luxembourg. I am reminded of the queues that I saw on a road in Luxembourg, which existed because the fuel duty is less in that country. So I am very mindful of what the hon. Member for Upper Bann has said and, as I said earlier, I hope that that is an issue that the Minister will respond to, because rural communities seem to be bearing the brunt.

RAC analysis of the survey “Family Spending 2010” shows that spending on transport for the average household was £58.40 out of a total weekly expenditure of £455. Transport is the biggest single item of expenditure, bigger even than food, rent, mortgage or entertainment. Obviously, ancillary services will suffer if transport costs continue to rise incrementally.

There are four options to discuss today. The first is not very realistic—it is the option to do nothing and maintain the status quo. Personally I do not believe that that is a sustainable or realistic option. Obviously, my preferred option is for the Government to pause on 1 April and not to impose the 1p rise in duty. Of course, that increase will be the eighth duty increase to have been proposed by the previous Labour Government since November 2008. I am mindful of the fact that if it is imposed, it would add at least 4p more to petrol and diesel pump prices, on top of the 1p increase in duty in January and the VAT increase as well.

The perhaps more controversial proposal to introduce a fuel duty stabiliser was first put forward by the present Chancellor when in opposition. As shadow Chancellor, he launched a fairly full consultation in July 2008 on a fair fuel stabiliser, a mechanism to ensure that when fuel prices go up fuel duty falls:

“So as the price of fuel rises, the amount of VAT charged also rises. This means that when the price of fuel goes up, the amount of tax charged on it also rises…The current system also makes the public finances more unstable. This is because, when oil prices rise, the Government receives an unexpected windfall from taxes on North Sea Oil production. And when oil prices fall, the Government suffers an unexpected shortfall in revenues.”

I take some comfort from the fact that the Chancellor, in his June Budget, said:

“We are examining the impact of sharp fluctuations in the price of oil on the public finances to see if pump prices can be stabilised, and we will also look at whether a rebate for remote rural areas could work.”—[Official Report, 22 June 2010; Vol. 512, c. 178.]

The hon. Lady has set out the virtues of a fuel tax stabiliser, but does she agree that that still does not address the differential between prices in rural and urban areas, which makes it so difficult for the small businesses that I represent?

I entirely take that point, and it is why one proposal that I will come on to is the rural rebate discount. I have no doubt in my mind that the fault for where we are lies very firmly at the door of the outgoing Government, and in particular of their Chancellor. In his 2009 Budget, he announced tax increases on roads, fuel, alcohol and tobacco, and set out fuel duty to increase by 2p per litre in September of that year, and then by 1p per litre above indexation each April for the next four years. The decision to increase duty rates in real terms was projected to raise £3.6 billion over the next three years from 2009-10 to 2011-12.

I will come on to that in a moment, but it would be nice to hear from the shadow Minister whether he feels any pain or anguish, or any need to apologise for where we are, particularly as many hon. Members from all parts of the House have today said that we are where we are. We need an all-party approach to get out of this, and since we know for a fact, from reading Lord Mandelson’s book, that the Labour party, had it remained in government, would have been committed to increasing VAT, we will not take lectures from Labour Members today.

Motoring organisations and some road hauliers have set out their difficulties with a fuel duty stabiliser, and perhaps the Minister in her response will tell us what stage we are at concerning the assessment reached by the Office for Budget Responsibility about how the stabiliser will work in practice. Were a stabiliser to be introduced, is she convinced that the reduction would be passed on to the motorist? If the reduction remained with the oil companies, there would be no advantage in introducing a stabiliser.

Turning to the rebate for remote rural areas, I realise the difficulties in persuading the European Union of such a necessity, but having practised the art, both as a European Community lawyer—now a European Union lawyer—and during 10 years in the European Parliament, I am more well-versed than most in how to persuade the European Union and our fellow member states, many of whose citizens live in equally remote areas. People in rural areas should be entitled to a discount on the rate of duty.

With fuel duties, the principle would obviously have distribution effects, given the greater reliance in rural areas on both private and public transport. We can have a debate and an argument about how the reduction in duty can best be administered, and I realise that a differential duty would require special dispensation, but the UK, in looking to apply a derogation for a lower rate of duty for petrol sold in one area—Scotland, for example—fails to recognise areas such as Northern Ireland, where there is a land border with an area selling fuel at a lower rate of duty. Also, remote areas that are particularly rural and do not have large centres of population, where people do not have schools closer than 13 or 15 miles and have to travel some distance to do a weekly shop, will be particularly penalised.

My constituency is very rural and contains a huge amount of quarrying. The quarries are remote, and most of the stone is carted out by road, with hauliers paying high fuel prices. Stone is a building block for much of the economy, so does my hon. Friend agree that if there were a rural consideration, the benefits would descend to people in non-rural areas?

My hon. Friend has provided an appropriate example of a business that depends heavily on road haulage to get its product to market, and I am sure that it would be a particular beneficiary if the fuel duty stabiliser or a rural rebate were introduced.

Domestic fuel is a subject that appears in my mountains of correspondence. One or two people have expressed concern about the possible operation of a cartel, particularly in the north of England—Yorkshire, the Humber and the north-east—in domestic heating oil prices. I welcome the fact that the Government have grasped that issue and are looking into it through, I understand, Ofgem, but I hope that one of the purposes of this debate is to push at what might be an open door, to press the Government to, at the very least, examine both where we are and how we got into this difficulty. My constituents have expressed their concerns in fairly strong terms. One stated:

“I like many other people in this country am fed up with having to pay over the odds in tax for what is to many people an absolute necessity rather than a luxury”.

Another wrote:

“I am the owner of a small business and am extremely concerned about increases in fuel duty, which have hit the small business sector the hardest.”

I congratulate my hon. Friend on securing this important debate. I have written to the Economic Secretary about the pilots that were announced last October for the proposed rural area rebate. EU Finance Ministers’ approval will be required before we can even get the small pilots going on the Isles of Scilly and in Scotland, which will take some time. Does she agree that it is really important that the scheme is rolled out as quickly as possibly, and that the Government need to go a stage further and indicate which rural areas they intend to cover?

I am taken by my hon. Friend’s arguments, but we learned a lot from the smash-and-crash approach of the Labour Government, who announced that they were introducing a 1p increase due to the state of the economy and the fact that the price of oil was $149 a barrel. The Prime Minister’s response to my question showed a responsible attitude. We need a responsible, well-thought-out approach in the Budget. Then we can have pilot schemes in North Yorkshire, Cornwall, Scotland and Northern Ireland.

I support my hon. Friend’s argument. Although the Financial Secretary has said that far-flung areas of Scotland might qualify for rural pilots, North Yorkshire is the most rural county in England and must surely qualify for a pilot if the Government decide to run some.

I am delighted that my hon. Friend and neighbour has put the case so eloquently. Rural communities, such as those in North Yorkshire, are suffering, and they deserve special attention.

On perceived price fixing between local retailers, I wrote to several major supermarkets in my area before the general election. Fuel is 7p a litre more expensive in Rossendale than in the immediately adjoining town of Bury. The supermarkets wrote back to say that there is a small geographical area in which they fix their prices. Is that not a case of major retailers charging people what they can bear rather than what is necessarily fair?

Several hon. Friends have made comments that I hope the Government will take up, not least of which is the fact that some small independent retailers who try to offer fuel in rural areas are being priced out of the market because suppliers 20 miles away undercut them substantially. All those issues are worthy of further investigation.

I am drawing my remarks to a conclusion.

I believe that we are pushing at an open door, and I take this opportunity to press the Government to change. Doing nothing is not a realistic option. The price of fuel is one of the most pressing issues facing those in rural communities. The small businesses that drive our economy, including the 6,000 small businesses in my constituency alone, are suffering particularly. Fuel forms a large part of individual household income, and it is extremely inflationary in pushing up the price of everyday items. UK hauliers already pay as much as £12,000 a year more than some EU competitors. As I have said, we now have the highest duty on diesel, yet our diesel is the most cheaply produced.

I make a plea to the Minister to stop the 1p increase on 1 April, consider seriously a fuel stabiliser and a remote rural rebate or discount, which would have a favourable impact on many rural constituencies represented in this Chamber, and address the discrimination against rural dwellers endemic in current pump prices. The differential between diesel and petrol is now unacceptable and must be addressed. I urge the Minister to respond in the most favourable terms possible for the good of families, farmers, the elderly, those with young children, small businesses and all of us in rural areas who depend on cars.

It is a pleasure to serve under your chairmanship, Mr Turner. I congratulate my hon. Friend the Member for Thirsk and Malton (Miss McIntosh) on securing this debate. The issue is important for those of us who represent rural communities, as the large turnout of hon. Members from the two coalition parties and Northern Ireland indicates. However, the right hon. Member for Delyn (Mr Hanson) casts a lonely figure on the Labour Benches. I also note that no Scottish National party Members have turned up, which is a scandal considering all the things the SNP is saying in the Scottish press. It shows that the SNP’s priorities are completely wrong.

Representing a sparsely populated rural constituency as I do, I am only too aware of the impact of high fuel prices on people and businesses. I represent many islands of the Inner Hebrides. To give some examples, the price of fuel on larger islands such as Mull and Islay is typically 15p a litre higher than at a city centre supermarket, and on the smaller islands such as Coll and Colonsay, the price is usually about 30p a litre higher. That obviously has a great impact on people’s living standards and on anyone on the islands who is trying to run a business.

I was therefore delighted when the Government announced their intention of pursuing a pilot scheme under which a 5p per litre fuel duty discount would be introduced on many islands, including the Inner Hebrides. I know that the Government need EU permission to go ahead with the scheme, that it takes time to get such projects through the EU and that it is important that the Government get their proposals right, but I urge them to take the proposals through the EU as quickly as humanly possible. I hope that there will be no objections in the EU. Several other countries—Greece, Portugal and France—have similar discount schemes on their islands, so I hope there would be no obstacle to our island pilot scheme. However, as other hon. Members have said, it is not just on the islands that the price of fuel is high. It is the same in many rural parts of the country.

I am grateful to my hon. Friend, who is making an excellent case. My constituency, like his, would benefit from the proposed rural rebate, especially the Isles of Scilly, which have just 2,000 people. He is absolutely right that it should be a fait accompli at the EU level, because the principle is already established. The difference in price on the Isles of Scilly is much the same as in his constituency. Does he not agree that we must press Ministers not only to get the proposals through the EU as quickly as possible but to indicate where the pilot will be rolled out beyond the small areas that will benefit in the first phase?

I agree. Some 6,000 of my 60,000-odd constituents will benefit from the pilot scheme, but I hope that it can be rolled out later to other rural parts of the country. However, the most important thing is to establish the principle. My hon. Friend will share my frustration that throughout the last Parliament, we proposed such a scheme every year in the Finance Bill and, although we often heard noises of sympathy from Labour Ministers, no action whatever was taken. It is important to establish the principle, which is why the pilot scheme is so important. Once the principle is established and is shown to work—Labour Ministers always said that it could not, in practice—we can prove it will work. It is important to establish the pilot and prove that it works. Then we can roll it out to other rural parts of the country.

On the coming Budget, the previous Government introduced the fuel duty escalator, which increased fuel duty by 1p over and above the rate of inflation. According to my calculations, that means that the tax on fuel would have increased by 4p in the coming Budget if Labour were still in power. Thankfully, they are not. I think we have established that any argument that fuel duty must increase for environmental reasons no longer stacks up. Market forces have already driven the price of fuel very high, which deters people from using their cars. Any further fuel duty increase would not help the environment; it would simply harm the rural economy.

It is easy for the coalition to knock the previous Government, and I have no objection to that at all. However, the coalition Government will be judged by what they do rather than what they say about the past.

I draw to the hon. Gentleman’s attention the fact that many rural dwellers do not use cars as a luxury. They use them because there is no alternative. Many of my constituents have no good local bus service and no train. We should bear in mind that they use their cars not out of luxury but from necessity. The Government say that transport sits at the centre of the rural economy; let them prove that they mean that.

I agree. In my own constituency, particularly on the islands, there are no trains, buses are few and far between, and it would not make sense for the local council to subsidise a bus service for only one person. That would be less beneficial to the environment than people using their cars.

I agree that it is easy to knock the previous Labour Government and that this Government must be judged on their record. It must also be pointed out that we face an enormous budget deficit and that the budget has to be balanced. I recognise that fuel duty brings in a lot of money for the Treasury, but I urge the Chancellor to find another way of raising revenue. Fuel duty discriminates against rural areas in a way that no other tax does, and almost any other tax increase to substitute for the fuel duty escalator would be an improvement. I will doubtless be considered a heretic at the Treasury for saying this, but why not put up the basic rate of income tax? The pillars of the Treasury may collapse at the idea that such heretical thoughts are still around. Every Chancellor for the past 30 years seems to have viewed bringing down the basic rate of income tax as a totemic symbol, but it is a much fairer tax than fuel duty because its impact is equally felt throughout the country, whereas fuel duty impacts far more heavily on rural areas. I therefore urge the Chancellor to abandon the fuel duty escalator policy that he inherited from the previous Government, and raise any other tax in order to balance the budget.

In conclusion, let us get the islands’ fuel duty pilot up and running as soon as possible, and abandon Labour’s fuel duty escalator in the Budget.

I, too, congratulate the hon. Member for Thirsk and Malton (Miss McIntosh) on securing this important debate. I am delighted that we have the opportunity to talk about the issue and that the Minister is present to listen to the concerns being raised, to which I hope she will be able to respond positively—if not today, then at least in the Budget.

In The Daily Telegraph in January, Boris Johnson wrote the immortal words that

“when it costs more to fill your tank than to fly to Rome, something is seriously wrong.”

I say a profound “Hear, hear!” to that—there certainly is something seriously wrong when it costs less to fly to Rome than to drive to Cullybackey in my constituency. Although that is a humorous point, it is—like all such humorous points—a telling one. The pips are now squeaking throughout this country, and none more loudly than in rural parts. Many hon. Members have already indicated that the car is not a luxury for people who live in rural areas. The hon. Lady made clear the necessity for four-wheel drive vehicles in rural parts of these islands. They are absolutely essential. That has to be driven home to the Government, who live mainly in cities. They have to recognise the needs of the rural community.

I say a huge “Hear, hear!” to the words of the hon. Member for Argyll and Bute (Mr Reid), who spoke about an island pilot scheme. I am glad that I live on an island—it is called Ulster—and I hope that such a pilot scheme will apply there as well. I flew today from the mainland of Ulster to this island to participate in this debate, so I hope that there is recognition for a fuel stabiliser from my island as well as the hon. Gentleman’s island. It is critical. Parts of England, Wales and Scotland have remote rurality, but if ever such remoteness was multiplied—there are a channel and seas between us—we are on the periphery of the periphery. On that basis alone, we deserve some sort of recognition for our rural areas and recognition that help will be given.

I was delighted to see in the agreement that formed the new Government recognition that something was going to be done to address inflated fuel prices. I am sure that, if we cast our minds back to the election, we would all recall that fuel prices were exceedingly high and that our potential and actual voters said on the doorsteps, “You have to do something about fuel prices.” That lost momentum—it is almost as if the car is no longer filled with fuel and has stalled. Now that prices are back up, as the hon. Lady has said, to 136p—15p higher in parts of Scotland, and 10p in parts of Northern Ireland—surely the momentum must be put back into the issue and the Government must grasp the nettle.

Since the coalition came into power last year, fuel has risen by £2.35 per tank. Does my hon. Friend think that the onus is on the coalition Government to address that issue?

The hon. Lady has rightly indicated that there are four options. As a member of an Opposition party, I am prepared to leave it to the Government and say that it is up to them to come up with a solution. Let us hope that we can get something with cross-party and cross-House support, and that we can drive it forward so that it makes a difference for the people who send us here. I think that we can all agree on that.

While we are having a go at the coalition, I might as well join in. Does my hon. Friend agree that the coalition needs to realise that, where Northern Ireland is concerned, millions upon millions of pounds of revenue are being lost to the British Exchequer every single year the longer this goes on?

Yes, that is an excellent point, and I want to comment on the issue of smuggling later. I emphasise the points made by other hon. Members that the Budget gives this Government the opportunity—I hope that they will take it and listen to the concerns—to come up with a solution that we can get behind and support.

The hon. Gentleman speaks eloquently about the importance of dealing with the issue. If the Government are able to deal with it, will the Democratic Unionist party and others march through the Government Lobbies in support of the Budget?

At home, if I march, I need to fill in an 11-bar-one form. The hon. Member for South Staffordshire (Gavin Williamson) may not be familiar with that form, but here I have the luxury of parading anywhere I want. If I support the Government’s proposal, I will happily lead the charge through the Lobbies and he will follow in my wake.

On average, petrol at home is about £1.30 or £1.35 per litre, depending on where it is bought. Of that maximum £1.35, 80p is a combination of taxes. People have talked about holding back the 1p increase in April, which will make a difference of about 2p or 3p at the pump, but we need something that will make about 25p difference at the pump if we are going to get not only the rural community, but hauliers and local industry moving again, and people with get up and go to recognise that the economy is starting to breathe and move again. The Government have a serious duty to address that.

My hon. Friend the Member for Upper Bann (David Simpson) has touched on the issue of smuggling. High prices encourage smuggling, and on my island it is incredibly easy to smuggle, because we have a land border with another nation state which has a different fuel price. If ever there was an open invitation or open goal to the smuggler, that is it. The Minister will know that in Northern Ireland alone—these figures are staggering—£200 million is lost each year to Her Majesty’s Revenue and Customs because of smuggling. In the Republic of Ireland, a further €140 million is lost to their Exchequer because of fuel smuggling. On top of that, environmental waste and damage are caused as a result of removing the various tracers and markers from fuels. That causes untold environmental pollution and harm.

If we have a fuel stabiliser, or the fuel price differential is altered and brought in to recognise those differences, the opportunity to smuggle and to cause crime and waste will no longer exist. We are only encouraging crime if we do not address the matter. That is another solid reason why the Government must get behind dealing with the issue of having fair fuel prices. They could, of course, do so through a taxation cut.

Does my hon. Friend agree that people are looking for clarity about how we arrive at the price of our fuel in the first place? Soaring prices at the petrol pumps are causing anger, particularly bearing in mind that many of the companies concerned recently announced massive increases in profits.

Clarity is important. Yesterday, I took the opportunity to check how the price differential is made up. Some 58.9p on every litre is duty, and a further 22.3p is VAT. The price of the actual commodity—whether it is diesel or petrol—is currently around 46p. Then, of course, the person who is pumping the fuel has to make a small profit, which is usually a matter of pence—about 5p. There is something seriously wrong when 80p of that is all tax. As I have said, it is getting to the point when people in remote rural communities can no longer get around. The closure of petrol stations in my constituency means that it is 16 miles between some villages and the local petrol station. If someone runs out of fuel, they are stuffed. People have to start thinking ahead, buying fuel and bulk storing it. That is not safe; it is hazardous. We must recognise that we are putting immense pressures on our rural communities. Such a situation must be addressed.

I leave hon. Members with those thoughts. As I have said, like many hon. Members, I am prepared to leave it to the Government to come up with a solution that we can get behind. I am glad that the Minister is here—I can see that she is taking notes—and I hope that she is able to give us some encouragement at the end of the debate. I look forward to the Budget, which will be the opportunity for the Minister to respond.

I congratulate my hon. Friend the Member for Thirsk and Malton (Miss McIntosh) on securing this important debate. I apologise to her, the Minister and yourself, Mr Turner, for possibly having to leave before the Minister has completed her wind-ups.

I shall try to bring together some of the comments made this morning by mentioning two examples from my constituency that illustrate the problem we have. The first issue is something we have not referred to this morning: the cost of domestic fuel for purposes other than simply driving. I thank my constituent Colin Keen for raising that matter. I shall give a quick example. Between Christmas eve and about the middle of January, people who were tied into domestic fuel contracts with a company called Flogas had a 46% increase in their fuel prices. That is an unsustainable and unjustifiable increase, which has a considerable indirect and direct effect on the rural community and the rural business network. It would be helpful for the Minister to address the problem experienced—at least in my part of the world—by a number of householders who are on large estates. They are tied into lengthy fuel contracts that they cannot reasonably or, in some cases, legally get out of. Their domestic fuel prices are apparently being adjusted without any reference being made to them and without them being able to do anything about it at all.

The second example I shall refer to is that of another constituent, Mr Barry Jones. He has studied local supermarkets and has pointed out that we are not necessarily getting a fair crack of the whip from them. He highlighted that Tesco in the rural town of Carmarthen is charging different prices from Tesco in the more urban setting of Llanelli down the road. There is up to 4p a litre difference. Tesco in Carmarthen argues that it is setting its prices in line with local suppliers. That is fundamentally untrue; it is not. It is setting its price at a rather different rate. I cannot help but think that such a situation is slightly ironic when I see a Tesco tanker with a slogan on it that reads: “Why pay more?” The answer is: because we have no choice. Perhaps we can address the grip that the five big supermarkets seem to have over every aspect of our lives, particularly in rural communities.

My hon. Friend the Member for Thirsk and Malton made a further point in her introductory comments about the overall inflationary effect of the issue on rural communities. What we are seeing—and what was being reported on the BBC this morning—is that there has been a much more profound increase in the price of things we need over and above the price of things we want. Fuel hikes have a very different downstream impact on the things we need compared with the things we occasionally want.

That brings me neatly to a further comment about the definition of rurality, which has been touched on in different ways by a number of hon. Members this morning. Several years ago, I tried to get a proper definition of rurality and, perhaps rashly, I asked the pollsters Ipsos MORI for one. It did not have a definition of rural and the people I asked simply said to me, “Well, it’s anything that isn’t urban.” If I may respectfully say so, that is a particularly unhelpful suggestion. Rurality comes in very different forms: isolated, very isolated, fairly isolated and, simply, rural. We need a clearer indication from the Minister and perhaps other interested bodies of what rurality and isolation really mean. I can foresee that some difficult choices and decisions will have to be taken and that they will be based on a line on a map that might mean everything to a bureaucrat, but that will mean absolutely nothing to those of us who live and breathe rurality every day. We might have constituents who fall the wrong side of a line and are prejudiced against—I accept that that might be unintentionally—as a consequence. That definition is important.

We have been told that up to 600 filling stations are closing every year, which means that people have to travel that much further to get their essential fuel. We are told that local authorities in certain parts of the country are cutting back on their rural bus services because of the increase in fuel prices and the downstream effect of that. However, we cannot lose sight of the direct and indirect effects of the issues discussed in this morning’s debate. The matter is affecting directly and indirectly pensioners, care workers, volunteers and hauliers. I can think of two hauliers in my constituency that are based in isolated rural areas so that they can be close to the ports of Pembroke dock and Fishguard. They are in an ideal location, but they can pretty well do nothing about fuel prices. They cannot even go over to Ireland—the Republic—and get a better price. Such price increases are playing havoc with their cash flow.

The hon. Gentleman’s hauliers, like my hauliers, suffer competition from people who come over the channel with a full tank of fuel and carry out transport business. That is a great disadvantage to our hauliers, who have to pay the full amount applicable in this country.

That is a good point. I think I recently read a coalition announcement that a surcharge might be applied to those foreign hauliers. It is worth remembering that hauliers cannot function without three things: vehicles, drivers and fuel. We cannot simply turn around and say that they have to address their overheads in the way we might do so with other businesses. They cannot function without those three vital ingredients.

I shall finish by touching on the big society—I think I have read about that in the news in the past 24 hours—and the social mobility that will come as a result of that. Every hon. Member who has spoken this morning has mentioned the effect of fuel prices, whether domestic or for vehicles, on their daily lives and on how they conduct their businesses. Every one of those observations could have been a direct reference to the big society. We cannot deliver the big society in rural Wales or rural Britain under the current conditions. There are people out there for whom the big society has been a part of their daily life for years, but it is becoming increasingly difficult to be champions of the big society because of fuel duty.

I am not high enough up the political food chain—nor, indeed, are other hon. Members here—to make these decisions, but they need to be made and, as an hon. Member said, they need to be made urgently. Whether it is a rebate, whether it is a stabiliser, whether it is a freeze on duty, or whether it is a combination of those things, the most pressing need for rural Britain if it is to be able to remain in business and deliver the big society is clarity and urgency. I hope that the Minister can address them both this morning.

I congratulate my hon. Friend the Member for Thirsk and Malton (Miss McIntosh) on securing this debate. It is essential that we discuss this matter, because of its severe effect on constituencies, such as mine in south-east Cornwall. There is no doubt that high fuel prices affect everybody, but in our rural constituencies they have a disproportionate effect.

South East Cornwall has a large number of self-employed people, small businesses and people who have to commute, and we have a very poor public transport infrastructure. The railway timetables are such that often the train cannot be taken and bus companies find it increasingly difficult to provide the service that is needed, so people rely on their cars. My constituents write to me time and time again about the cost of petrol. I stood at the general election on a manifesto that contained the fair fuel stabiliser. I hope that the Chancellor of the Exchequer will include provisions for that in the Budget so that my constituents, including businesses and the self-employed, are at least able to budget for a 12-month period, rather than have their profits decline continuously because of the high rise in fuel prices.

I echo what all hon. Members have said in the debate, but there is one issue that has not been addressed, which is the effect of current fuel prices on our shipping industry. I declare a special interest because my husband is a commercial fisherman. People do not seem to understand that, while our fishermen are able to reclaim the duty they pay, it has a detrimental effect—in fact, a disastrous effect—on their cash flow. There are fishermen in my constituency who go to sea in dreadful weather conditions, but do not secure any return from their catch because it all goes on fuel.

Part of the point expressed by the hon. Lady relates to fuel, but also to the price of the commodity being less than it was three years ago and to restrictions from Europe on days at sea. Those reasons, along with the fuel increase, are why the fishing industry is in dire straits today.

I could not agree more, but I want to stick to the issue of the price of fuel, which is having an effect on our farmers, our hauliers, our fishing industry and on small businesses in my constituency. In South East Cornwall, most businesses are tiny and cannot stand the impact of increasing fuel prices on their cash flow for much longer—it cannot continue.

To sum up, Cornwall has a large number of residents who have no access to the mains gas supply, or other, cheaper alternative supplies of heating. The increase in fuel duty affects the ability of a lot of my constituents to provide heating in their homes.

Does the hon. Lady acknowledge that there is frustration in the community that, when a barrel of oil on the international market goes up, the price rises immediately, yet whenever there is a decrease, there seems to be a long period of time before the price deflates again? Is that not another issue that needs to be tackled by the Government?

The hon. Gentleman sets out a very good case for the introduction of a fair fuel duty stabiliser, which would cushion that effect.

Finally, I would like to mention the rural rebate and make the case for the whole of Cornwall to become a pilot for the rural rebate. We already have convergence funding, so there is already recognition that Cornwall is a special economic area. I ask the Chancellor to ensure that Cornwall is considered as a recipient of a rural rebate.

10.26 am

Thank you, Mr Turner, for calling me to speak in this debate, which is of huge importance. I, too, congratulate my hon. Friend the Member for Thirsk and Malton (Miss McIntosh) on securing this debate. This issue is probably more important and relevant to the problems facing my constituency at present than any other that I can think of, and it dominates a lot of conversations.

I intend to make a fairly short speech because hon. Members have raised most of the points I wanted to raise; I do not want just to repeat them. However, fuel duty is particularly important where I live for two main reasons. One is the absolute cost. As with a lot of rural areas, fuel is essential to us. We cannot just pick up a newspaper in a local shop; we have to drive to the shop. We cannot access any services without having to drive to them. That point is more relevant in a sparsely populated area than anywhere else.

The second issue is competitiveness, about which my constituency neighbour, my hon. Friend the Member for Brecon and Radnorshire (Roger Williams), made—twice, I think—an important point. Competitiveness is important because it affects not just transport hauliers from overseas but those in Britain. The position of small businesses and individuals where we live is incredibly difficult because of competition. The price of fuel is acting as an anti-regional policy that is persuading people to move out, simply because of cost. This is not about individual, large purchasing decisions; it is the accumulation of all the little things that everyone has to buy that makes living so much more expensive.

I do not live on an island, but Montgomeryshire, and Brecon and Radnorshire, are very sparsely populated. Most of the sparsely populated parts of Britain are probably represented here by hon. Members who have made interventions. We want something to be done, but I know perfectly well that that is much easier said than done. There are two issues that must be dealt with: we have to face up to the world market that has caused fuel prices to rise, and which we do not have any great control over; and there is the state of our public finances, which the Treasury has to deal with. We are in huge debt and massive interest payments must be repaid—that cannot be denied. To ask the Chancellor of the Exchequer to reduce taxation anywhere in the Budget is a difficult request, and a balance must be struck. However, we also know from what he has said previously that he is sympathetic on this issue. He has spoken about a fair fuel stabiliser in the past, and that is certainly one way to address it. I can see the question of the use of a fair fuel stabiliser giving rise to great difficulties, and I am certain that the advisers working for the Chancellor are looking at how those difficulties could be ironed out. I can see that there are problems.

The second issue, which interests me more because it is getting a lot of coverage, is one that many Members have spoken about today and which I would favour: giving some form of concession to the parts of the country that are deemed to be sparsely populated or rural, where the impact of the price of fuel is greatest. It is said that we are talking about a figure of only 5p per litre, and that the concession would apply only to the remotest parts of Britain. In that regard, I, like others who are present today, want to make a pitch for where I live. Rural Wales is sparsely populated, and if we are to start this initiative in the remotest parts of Britain—that is what is being discussed—and if the Chancellor has to negotiate with the European Union on how a pilot scheme might be introduced, I hope there will be an early roll-out to constituencies such as mine, where it might make a difference.

My hon. Friend does not need my help—he speaks with great experience and passion on this matter—but some people consider Cumbria the most sparsely populated area in England, although, as he and I know, Powys is four times more sparsely populated. That may add some strength to his bid.

I am hugely grateful to my honourable neighbour, if that is a proper parliamentary term to use. No, I did not know that it was four times more sparsely populated. As he started to speak, I was intending to go straight to Google to find out the relative levels, but I accept the figure he gives. We know that Powys is sparsely populated. In the past, there would have been Government initiatives to address the problem, but I cannot think of any current great initiative. We need one, and we need to be added to the list of places where fuel price alleviation might be provided.

I wanted to make this contribution, first, because the issue is hugely important to my constituents, and, secondly, to encourage the Chancellor to recognise in his Budget that it is one of the greatest problems facing the remotest parts of rural Britain. The insidious impact is, as I described earlier, an anti-regional policy that makes it far more difficult to bring development to the remotest parts of our country.

Thank you, Mr Turner. I, too, congratulate my hon. Friend the Member for Thirsk and Malton (Miss McIntosh) on securing this debate. Much of what needs to be said has already been said, but I would like to make some quick points on rurality.

There are certain goods that can come only from rural areas. I have alluded to stone from quarries, and there is also milk from our farms. Such goods have to go into urban centres, so the people who transport them are based in rural areas. Big haulage contractors are based in High Peak because that is where the product is. The impact on small businesses based in rural constituencies has already been mentioned, and, if we are not careful, the price of fuel will drive such businesses away from rural areas into urban areas, thereby accelerating the demise of rural towns.

The Ferodo brake linings factory is in my village of Chapel-en-le-Frith. Shops in and around the village exist on the back of that factory and the people who work in it. If we drive such companies into urban areas, our small towns will suffer.

The Countryside Alliance has produced statistics showing that people who live in rural areas spend a higher percentage of their income on fuel because of the lack of public transport. Since I was elected to this place, I have been impressed by the transport in London. There are buses and the tube—there are various ways of getting about that are not available to people in rural areas. The bus I use to come here runs every six minutes, but buses in rural areas run every half hour or less, which makes getting around more difficult. Consequently, people spend more of their income on private transport. I believe that the average rural resident travels about 8,700 miles on private transport, whereas it is about 5,000 miles for an urban resident. That equates to an extra £200 in tax in a year.

One bus in my constituency comes once a day, and another bus—a charity bus—comes once a week.

I am sure that that is right, and I am sure it is the same in other areas. That brings me to considering the solution. I know that the Chancellor is looking at the issue—he said so in the House—and I understand that he is in a very difficult position because of the financial implications. We have spoken about concessions for rural areas. My concern with that is defining what is rural and what is not. I have various small towns and villages in my constituency, such as Glossop, which shares a boundary with Greater Manchester. It may not be considered rural, but one can go a few miles up the road to a little village called Sparrowpit which is very rural. Like my hon. Friend the Member for Carmarthen West and South Pembrokeshire (Simon Hart), I worry that a line will be drawn and people will fall on the wrong side of it.

The answer is the fair fuel stabiliser. I know it is a difficult issue, and I have great sympathy with the Chancellor and the Treasury team who have to determine how a stabiliser would be introduced. Perhaps we need to hold off on the duty rise that is due while we try to get it working. Many of us here are standing up for rural areas. I do not think that people in urban areas really understand how big an issue this is to those in rural areas who fill their car up perhaps two or three times a week if they have to drive here, there and everywhere, and how much that impacts on the household budget.

I thank you for giving me an opportunity to speak, Mr Turner, even though I had not notified you earlier.

I congratulate the hon. Member for Thirsk and Malton (Miss McIntosh) on securing this debate, which has drawn a great deal of interest. The fact that some 20 Members from all parts of the United Kingdom—Northern Ireland, Wales, Scotland and England—contributed to it shows how important the issue is across the whole of the UK. I confess that for a moment I felt like the 24th Regiment of Foot at Rorke’s Drift—I felt that I was surrounded by thousands of Government Members—but I was pleased that at some point the focus of the debate shifted to the Minister rather than the Opposition.

I am delighted to see that the right hon. Gentleman has been joined by a reinforcement on his side. Does he think there is any reason for this issue registering so little in the interests of members of his party that no one else has turned up to participate in the debate?

I have hon. Friends who represent rural areas. I myself represent a rural constituency. In 2000, the well-known fuel dispute commenced in my constituency because of concerns over fuel prices—we have an interest in the matter.

My first point in response to what the hon. Lady said is that the previous Labour Government did try to address the issue. She will know that striking the right balance between taxation, the environment and affordability of car transport is critical, and that is why Labour, when in government, postponed fuel duty rises when the cost of petrol was high. In October 2008, we postponed the 2p per litre rise to help alleviate the pressures that we recognised were there.

When the fuel dispute took place in my constituency, petrol was around £1.06 to £1.07 per litre. In my constituency, it is now around £1.28 per litre—slightly less than has been mentioned today but a big difference—and, as Members have said, that impacts on businesses, schools, commuters and a range of issues generally. My first thought was, if that is the case, what have the coalition Government, who have had the opportunity to tackle the issue, done since last May? In an intervention, I explained to the hon. Lady that she voted for VAT increases which, according to the House of Commons Library, have added around 2.6p per litre to the price of petrol. Those are important issues. I do not want to focus on the negative, but we cannot get away from the fact that the price of petrol is higher now than it was when Labour left office, and it is higher because of the VAT increases for which she voted.

Is the right hon. Gentleman denying that it was his Government’s policy, had they continued in government after the election, to introduce VAT increases which would have had a negative impact?

There is a range of issues. We would have had to see what we would have done. We had a range of plans to tackle the deficit, but, in my view, VAT is a regressive tax.

The hon. Lady might want to, but she cannot hide from the fact that her vote—and the votes of all hon. Members who have spoken today from the Government Benches—has added to the increase in the price of fuel since May last year. That is an uncomfortable fact for them, but that is what they have done. Again, I do not want to focus on the negative, because we have had some positive discussions. However, when attacked, I tend to fight back. Unfortunately, that point was made, so I have to reply on the record.

We have had a number of suggestions, all worthy of consideration. I will look at each in turn. The hon. Lady discussed the issue of the fuel duty stabiliser. The issue was raised during the election, and the hon. Members for South East Cornwall (Sheryll Murray) and for High Peak (Andrew Bingham) also touched upon it today. The fuel duty stabiliser involves some problems, so an explanation from the Minister as to where the Government are on their election pledge from last May would be worth while. The Government’s own Office for Budget Responsibility said recently that the idea of a fuel duty stabiliser is unworkable. I share that view, on behalf of the official Opposition.

In principle, the concept is simple: as oil prices go up, fuel duty will go down; and as oil prices drop, fuel duty goes up. The motorist, therefore, pays more or less the same for fuel and the Exchequer gets more or less the same in revenue. However, in reality, the suggestion is far from simple. On 14 September, the Office for Budget Responsibility published an assessment of the effect of oil price fluctuations on public finances, with the aim of informing the debate. The report found that a temporary rise in oil prices would have a negligible effect on UK public finances, while a permanent rise would create a loss. The Government would find introducing a fair fuel duty stabiliser difficult because, as the head of the OBR, Robert Chote, suggested a couple of weeks ago,

“a fair fuel stabiliser would be likely to make the public finances less stable rather than more stable”.

A 1% reduction in petrol duty would cost the Exchequer around £130 million. The fuel duty stabiliser, depending how it was operated, could cost between £3 billion and £5 billion of public expenditure. The stabiliser was a manifesto commitment, which the Conservative Government wish to carry out, but they need to explain how they will do so and how they will compensate for the loss to the public purse of such a sum. My rural constituents, as well as my urban constituents, will have to find that money from somewhere else, whether in public service cuts or extra taxation. The then Liberal Democrat spokesman, now the Secretary of State for Business, Innovation and Skills, said in opposition that he believed a fuel duty stabiliser would be “unbelievably complicated and unpredictable”, which the OBR has confirmed. We need an explanation of where we are. Is the fuel duty stabiliser still a live option? Do the Government intend to keep their manifesto commitments? What would the cost to the public purse be of the potential loss of income from the stabiliser? Since the election, all we have seen is a rise in VAT to 20%, which has increased petrol prices, not decreased them.

The hon. Members for High Peak, for South East Cornwall, for Montgomeryshire (Glyn Davies), for Carmarthen West and South Pembrokeshire (Simon Hart) and for North Antrim (Ian Paisley) suggested that we look at the idea of a rural derogation, which the Liberal Democrats proposed in their manifesto. The idea seems to have been adopted by the coalition. However, the pilot at the moment is simply for the Northern Isles and for the Isles of Scilly. We have also had representations today for the “island of Ulster”, as the hon. Member for North Antrim called it, as well as from Cornwall and mid-Wales—a very rural area, I know, as pointed out by the hon. Members for Brecon and Radnorshire (Roger Williams) and for Montgomeryshire—and from the hon. Members for High Peak, for Thirsk and Malton and for Skipton and Ripon (Julian Smith). Such areas should be included in such an issue.

How would the Government define a rural area, given the issues raised? Half of my constituency is extremely rural and half extremely urban. Throughout the Chamber, we have had discussion about where the border falls. The difficulties are real. First, why have the areas chosen for the pilot been selected? I could make a strong case for parts of Northern Ireland, where I served as a Minister, parts of mid-Wales, which I know very well, or parts of North Yorkshire.

The right hon. Gentleman called for the rural derogation, which I am not against. However, that worries me, because I sort of agree with him. My constituency is rural, but includes two fairly sizeable towns, so where the lines are drawn would concern me. We could have that same problem of people shipping petrol across the lines.

The issues are real. Again, in response, can the Minister tell me why the pilot areas were chosen? What is the assessment of rolling out a rural derogation throughout the United Kingdom? What are the cost assessments for the pilot areas and, indeed, for the other areas bidding today? How do we change the current scheme of taxing oil when it leaves the refinery, rather than at point of sale?

On people travelling to get cheaper fuel, the idea of a derogation is to equalise the price between areas, not that it is cheaper in rural areas than in urban areas.

As the hon. Gentleman knows, that still involves a cost. We have already seen great bids from a number of parts of the United Kingdom for the derogation to be applied.

Currently, tax on oil is levied on leaving the refinery, rather than at point of sale. The complex issues of a derogation involve not just fairness but also applicability and how to achieve the aims wanted on the ground. The Government must reconsider the real issues.

Finally, one of the big issues in the Chamber that has not been explored was touched on briefly by the hon. Member for Montgomeryshire: the role of the oil companies in the price of petrol. Shell will have made £1.6 million in profit during the hour and 10 minutes of today’s debate. Even after the cost of the Mexican gulf oil spill—£7.7 billion—British Petroleum made £1.8 billion in profit in the third quarter of 2010.

The Government have their responsibility for the price of petrol, but I am also interested to know what steps they are taking internationally about oil company profits—made, quite rightly, in part, from the cost of petrol. Are steps being taken to look at such levels of profit and at whether we can take action among Governments to make a difference? The issue has no easy solutions. We took action as a Government to reduce the price of fuel when it was under pressure. In the Budget, the Government have the opportunity to do the same with the proposed rise. I am interested in what the Minister has to say. The solutions proposed today are not all simple, applicable or desirable. We need to have cross-party consensus, and I appreciate that the Minister has a difficult job. She must now know what we knew in government: none of the issues are easy, without real pain to communities at large. I welcome hearing what she has to say.

It is a pleasure to serve under your chairmanship, Mr Turner. I also thank my hon. Friend the Member for Thirsk and Malton (Miss McIntosh) for securing today’s debate. We debated the subject on the Floor of the House recently, but I very much welcome another debate today, because she has clearly raised an important issue.

The cost of fuel is a difficult issue for many families and businesses throughout the country. As I said, the House had an extensive debate last week and, again, we have had helpful contributions from Members throughout the Chamber today. I share the disappointment of my hon. Friend that no Labour MPs other than the shadow Minister participated on an issue that clearly affects all our communities.

In fairness, when we face such difficult times, the impact of fuel duty and fuel prices become even more critical for families and businesses. The Conservative party had recognised that in opposition. We have always acknowledged the impact of oil prices—how they feed through into fuel prices at the pump—to be a real challenge. The Opposition, as we heard again from the shadow Minister, still do not recognise the problem to be in need of solution. We do.

As discussed today, we talked about a fair fuel stabiliser, which I reassure the Chamber we are looking at actively. We take it seriously, and we are looking at how we can develop that policy, among others.

I know that the Minister will be pressed to go further, but she will probably not be able to today. One of the coalition Government’s best selling points in the run-up to the election was that we always referred to factors such as rurality and sparsity of population. That was in all areas of life, whether delivering the big society or speaking about the everyday roles of individuals and businesses in rural areas. Will the Minister confirm whether we will go back to that? Do we need a fuel duty regulator? Many of the concerns raised during the debate were about how the reduction in cost would transfer to the motorist if a stabiliser was brought in. I hope the Minister will address the huge and significant differential between the prices of diesel and petrol at the pump.

My hon. Friend raises an interesting point, and this debate has been an excellent opportunity for hon. Members to set out the challenge that fuel prices pose for their communities and businesses. It is difficult—and it would not be right—for me to pre-empt the coming Budget, but my hon. Friend sets out some of the broader issues. This debate is not just about how the oil price feeds through to the price at the pump, but about recognising that rural areas face a particular challenge. I say to my hon. Friend the Member for High Peak (Andrew Bingham) that people in urban areas do understand the impact of fuel prices—they face them too—but we recognise that there are additional challenges for rural areas.

As we have heard, public money is short and the deficit we inherited is unprecedented in modern times. The previous Government had no answers or real ideas—we have heard no ideas today—to tackle the mess that they created. There was something ironic about the note from the outgoing Chief Secretary to the Treasury that said, “There’s no money left.” In many respects, it was even worse than that; we were left with a deficit and debts.

It is worth running through the many rises in fuel duty that we have seen. There was a rise of 2p per litre on 1 December 2008; a rise of 1.8p per litre on 1 April 2009; and a rise of 2p per litre on 1 September 2009. A rise of 1p above RPI was announced in the 2009 Budget. That was phased in from April last year, with a second rise of 1p per litre in October. A range of future increases was announced in the 2009 Budget, one of which has particularly concerned hon. Members in this debate. In spite of all those rises, we picked up an enormous deficit and, according to the outgoing Government, there was no money left. That shows what an absolute mess they handed over which, as has been pointed out, places constraints on what we are able to do. However, we know that we must tackle that mess, and tackle it we will.

We have had to take difficult decisions. Nevertheless, in the midst of that we have taken steps to increase the personal allowance, which will rise by £1,000 from April this year. That will help families on the lowest incomes, and 880,000 taxpayers will be taken out of paying income tax altogether. Parents will be able to take advantage of increases in child tax credits, and pensioners will receive above-indexation increases in the state pension. We have managed to do something that the previous Government did not do in 13 years—re-establish the link between the state pension and earnings. Corporation tax for businesses is being cut from 28% to 24% over the next four years.

The Minister must acknowledge that those measures apply across the board and to those in urban areas as well as rural areas. Rural areas are being penalised because of the price of petrol, and we need something to deal with that issue.

That is why I am about to talk about the fair fuel stabiliser and the rural fuel rebate pilot. We have tried our best to tackle the deficit, but the way to do that is to encourage growth, help business get back on its feet and take away tax rises and the jobs tax—it would have been catastrophic if employment had cost companies more. We managed to get rid of the worst effects of that, but there is a particular issue with fuel.

In opposition, we talked about a fair fuel stabiliser because we recognised the problem posed by oil prices in feeding through to the price at the pump. When we came into power, one of the first things we did was to ask the Office for Budget Responsibility to look specifically at how the price of oil affects our economy. It said that although there may be some tax receipt growth, higher energy and fuel prices do not help the economy—a point reiterated by many hon. Members. It pointed out that a rise in the oil price has a range of other effects on the economy and does not feed through into extra tax receipts in a straightforward way. People spend less money, goods become more expensive, and certain benefits increase as a result of a rise in oil price. Therefore, it is a difficult issue.

I reassure hon. Members that we are looking at a fair fuel stabiliser and at other measures to tackle the problem of fuel prices. There are a range of options, but we must ensure that whatever we do is fair and affordable. Tax is a matter for my right hon. Friend the Chancellor, and I would not be so presumptuous as to pre-empt him. He will update the House during the Budget, which is only a few weeks away.

The rural fuel duty rebate was mentioned. It is clear that changes to the fuel price have a particular effect on those who live in rural areas and, as we have heard, have a greater reliance on petrol and diesel and face significantly higher prices. That problem is exacerbated by the lack of alternative transport, and realistically for many people the car is the main way of getting around.

My hon. Friend the Member for Carmarthen West and South Pembrokeshire (Simon Hart) spoke about why the definition of rurality is so important. Interestingly, the EU does not have exact criteria to define rurality, but it will look at the rebate in terms of state aid, and take into account a range of factors such as the cost of transporting fuel, average fuel prices, public transport and access to petrol stations. It is able to look at the issue in a flexible way, which is helpful.

When we came into government, we announced our intention to introduce a rural fuel duty pilot. The pilot will deliver a duty discount of up to 5p per litre on all petrol and diesel, which will save some drivers in rural areas more than £500 a year. We are still looking at the exact scope of the scheme; today’s debate has shown that many hon. Members have particular concerns for their communities and the rurality faced by those communities. It is not as easy as one might hope to define what is rural and where a rural fuel duty might apply, but the pilot aims to get on with that process and work through those challenges. We want the scheme to go ahead in the Inner and Outer Hebrides, the Northern Isles and the Isles of Scilly, but we have not yet finished the exact definition of the scheme. Before it goes ahead, the scheme must get clearance from the European Union. Those discussions are ongoing and are currently at an informal level as that is the best way to proceed to ensure that the pilot scheme is approved. We will update the House further at the time of the Budget.

To conclude, the dramatic increase in world oil prices and the previous Government’s increases in fuel duty have pushed up prices at the pump. We understand the concerns of families and businesses across the country, and we are taking every action possible to help those most in need. At the same time, we must act responsibly and ensure that we tackle our record national debt. That is not easy; it is a difficult balance to strike and we are considering all options in the run-up to this year’s Budget.