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Mr. Kenneth Clarke (Rushcliffe): I have great respect for the hon. Member for Banff and Buchan (Mr. Salmond), but I cannot recall taking part before in a debate initiated by the Scottish National party. I have no objection to doing so now. I congratulate him on tabling an amendment on an important subject. However, I am not totally persuaded by its literal terms, so I am not sure that I will join him in the Division Lobby.

Nevertheless, the hon. Gentleman raises an important topic for most of our electorate, certainly those who live in rural areas. A short discussion about tax levels on petrol and diesel is justified. I decided to speak in the hope that the Minister would take the opportunity to explain the Government's policy on that. This subject, above all other aspects of their economic policy, is something on which they have no consistency. Their most recent primary motivation has plainly been panic in the face of public opinion. They have been buffeted by events and give no inkling of the direction of their policy should they be returned to power.

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The explanatory notes to the Bill give the last great pronouncement of our Chancellor on his considered policy on this subject. They say:

That seems to me largely to depend on the dates of an election, newspaper reaction to recent decisions and the public reaction to the levels of taxation which have been imposed, and that is not very satisfactory.

The hon. Member for Banff and Buchan said that we are having this debate against the background of an interesting change in the economic climate, which affects all our discussions on the Bill. The Chancellor has at last recognised that he has not abolished the economic cycle. A marked slowdown is taking place in the American economy; there is some slowdown in the eurozone economy and some economic slowdown will take place here.

A question should be asked of a Chancellor who has been very lucky in the past four years. I shall not talk about his inheritance, but I certainly think that he has been

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lucky in the state of the world economy. He has managed to produce reasonable results by following fairly aberrant policies. He taxed too much when he did not need to, putting taxes on business, savings and pensions. He savagely restrained public spending for his first two years, and he now promises for the next three years massive increases unrivalled in this country since the days of the Heath Government which he thinks can be sustained by continued growth. All that may be changing, and I agree with what the hon. Gentleman just said about the Chancellor's apparent complacency about that--it fits in with my theme on fuel taxes. The time has come for a clear policy and a clear statement of where we are going, and I am not sure that that is what we will have.

The Chancellor's approach to fuel prices when he came to office was very straightforward. It was very flattering of him to adopt what he said was my policy. Indeed, for some time I had been following the fuel tax escalator, having introduced it when we had the cheapest petrol and diesel in western Europe, a situation that, in my opinion, we had arrived at slightly by accident and without anybody really noticing or asking why. I made it clear when I stuck to the escalator during my time as Chancellor that I was doing so first because I needed to raise the revenue to deal with the state of the public finances. That is a matter for which the Chancellor should be grateful because he inherited very healthy public finances as a result of the tax and spend policies to which he had succeeded. Secondly, the escalator had environmental benefits, which I did not overstate, but I certainly thought that it was worth while to return to a higher rate of tax and a higher price for petrol and diesel to make people think twice about using their car and to make them look for efficiencies in their use of fuel, and that had environmental benefits.

The Chancellor was very flattering--he took all that over and decided that the fuel tax escalator was now an essential part of his tax strategy. However, he increased the rate above inflation at which he was going to escalate fuel tax. He also increased the frequency of the increases by having two Budgets in one year, in both of which he applied the same escalator. He took over the escalator and accelerated it. He also forgot one of the rules of escalators which those who travel by public transport will recall, which is that one gets on at the bottom and one gets off at the top. This escalator was now to go on for ever, and according to this Chancellor, before last September, fuel taxes were going who knows where. At that stage, we were already the most expensive country in western Europe for the motorist and the haulier, and the Chancellor was firmly committed to carrying on with the fuel escalator for the foreseeable future, come what may.

As a tax policy, that was catastrophic. It was one of the Chancellor's more elementary errors. People have often quoted Colbert saying that the art of raising taxation is to pluck the feathers of the goose but to get as many feathers as one can with the minimum of hissing. The Chancellor chose one target, fuel taxes, and drove them on remorselessly at such a rate until he had a consumer explosion--a revolt. He carried on with that policy to such an extent, showing no reservations about it, until we had the nearest that we have had to a citizens' revolt on the streets. For a week or two, it had mass support, as people realised that they had by far the most expensive

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petrol and diesel in western Europe and that the Chancellor intended to carry on raising prices. Those of us on the road at the time found ourselves surrounded by a public who genuinely sympathised with hauliers going in for direct action, causing conflict and so on. Fortunately--although this is a funny way of conducting Government policy--the Government showed signs of panic, as they do in every crisis, retreated rapidly and backed down. Now we have no policy and there is a freeze on duties for an unspecified period, which will certainly go on until after the election.

Mr. Salmond: I do not want to discourage the right hon. and learned Gentleman from speaking in Scottish National party debates in future but, if I have followed him correctly, he said that the Chancellor made two mistakes; first, public expenditure in the first two years was too low--which, of course, was inherited from the right hon. and learned Gentleman--and, secondly, the fuel price escalator, which was also inherited from him. Could he not have left a note in the Treasury telling the Chancellor to get off the escalator, or other helpful advice?

Mr. Clarke: The Chancellor is fond of taking my slogans and claiming that he is taking my policies. In previous Budget and Finance Bill debates, I have tried to make it clear that he is getting them slightly wrong. I have been highly critical and have often regretted the fact that he has used my slogans and taken my name in vain to characterise the rather peculiar policies that he has followed. I will not go through everything, but I invented the slogan,

I used that in my first Budget, and it was promptly stolen by the present Chancellor. When I used it, I did not mean that we going to abolish the economic cycle; the whole point of macro-economic policy was to stop the extremes that could arise from bad macro-economic policy when the economy went into a bubble, followed by a deep recession, which we experienced in the late 1980s and early 1990s and which the Americans may be experiencing now, as they seem to be going through a classic boom and bust scenario.

I left behind figures on spending and, with all my colleagues, expected an annual public spending round, which would adjust those figures between Departments in the light of circumstances affecting both them and the national economy. The Chancellor said that he was following Tory figures, but when he made that announcement he made only one decision--to cancel two years of public spending rounds. I have said previously that I am sure that none of my colleagues in the Conservative Cabinet, especially the Secretaries of State for Education and for Health, would ever have put up with that.

I find myself agreeing with Liberal Democrat Members that the Government's bizarre decision was motivated only by a desire to cut public spending commitments in the first two or three years to enable them to be more generous at the end of the parliamentary period. The Government left it a bit late; the health service was in crisis and the Prime Minister was panicking when they finally changed gear and went into pre-election mode. Now there are spending commitments, not just on health and education--if we were to take office now, I would

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support colleagues who have committed us to that--but across Whitehall. The Government are now postulating increases in public spending in the next three years far beyond any likely rate of growth in our economy. Those increases are bound to take us into deficit in the middle of the next Parliament unless fiscal prudence is pursued by the Chancellor's successor.

I have already dealt with fuel tax: the Chancellor took over my escalator. If, when I was Chancellor, I was asked whether the idea of petrol and diesel escalator was that every year, whatever the circumstances, taxes on those commodities would be increased by a certain percentage beyond inflation for an indefinite and non-foreseeable period I would have said, "Of course not." I would have said that that would have caused a consumer revolt, because no sensible tax raiser puts such a large burden on a narrow piece of the tax base. When people look back on that feature of Government policy, they will think it quite bizarre; the Government just sat and waited until, eventually, the lorry drivers predictably took to the streets. Indeed, we got to the stage when major haulage firms filled large-capacity lorries with diesel before coming back to this country to make their journeys here.

In present circumstances, I do not expect the Chancellor to accept the SNP's inducements to take off another 3p a litre. However, could we have an indication of the Government's present and future policy? Is it just to go to the election saying, "We cut the duty and held it down, and after the election, we'll have to see what turns up, but so long as you keep quiet and the newspapers don't mind, and if we have some problems with the public spending commitments, we will no doubt be back to putting up the tax on petrol and diesel again"?

The Government got away with what they did before September last year because they were very lucky with the crude oil price, which fell extraordinarily for a long time, so the motorist and the haulier did not notice the impact of the taxation. Once the oil price began to go back to a more normal level, the full horror for the rural economy and much of the business economy was revealed, and the Government had to go back. Do they intend in future to take account of crude oil prices in deciding the appropriate level of petrol and diesel tax in any given year?

Will the Government in future pay more attention to the impact of the tax, on the rural economy in particular? This is an especially appropriate time to discuss that aspect, as the rural economy faces a tremendous crisis this summer, which will have a marked effect on the growth of the economy as a whole, when the knock-on effect of the foot and mouth epidemic on many associated rural and countryside industries is felt.

Will the Government have any concern for the environmental consequences of taxation? One minute they put the tax up because that is good environmental policy, then they put the tax down, which apparently, they say, has no environmental consequences at all. I know that the Government have no real commitment to using tax for environmental purposes. I personally introduced the landfill tax and gave a rebate on it--instead of the taxation being paid, when money was put by site operators into environmentally approved schemes. I cited environmental reasons for putting up road tax.

This Government cited such reasons when it suited them, but they had different arguments for lowering the tax on domestic fuel. They had different arguments for

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subsidising the coal industry and coal-burn in power stations. They have absolutely no consistent or genuine view on environmental issues, but will they be persuaded that there is an environmental case for keeping our fuel taxes among the highest in western industrial countries, but not vastly above the level that prevails in competitor economies across the rest of western Europe?

When the Minister says that she cannot take off 3p per litre, I invite her to take the opportunity to explain the Government's approach. They look back over folly, panic and U-turn. Can they explain what balance they intend to strike, bearing in mind the crude oil price and the particular effects on the rural economy and on other parts of the economy that are dependent on diesel fuel, such as haulage? What is their policy on the environmental consequences of a fuel tax?

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