Mr Major’s Comments on the VAT Increase on Fuel – 24 March 1993

Below is the text of Mr Major’s comments on the VAT increase on domestic fuel, made on 24th March 1993.

QUESTION:

[The Prime Minister was asked about the Government’s VAT increase on domestic fuel]

PRIME MINISTER:

I think you have to realise why it was done first. There were two reasons: we had to raise resources and also we have a commitment to get rid of carbon dioxide, a very important environmental commitment. This takes us a long way towards doing it and I have been speaking at a conference about that in Birmingham just this morning.

We are the only European nation that doesn’t have VAT on fuel and power, many of them at far higher rates than 17.5%.

Over the last few years, the real price of energy has fallen by about 9% as a result of privatisation. Each year, there is regulation on the price and the price is fixed by the Retail Price Index minus something. Whether the whole of that 17.5% in two years will have been put on the price of fuel is very debatable; it may be substantially less because the regulator will have reduced the price.

For the average pensioner family, for example – I don’t mean the least well-off who I will come to in a minute but the average pensioner family – I use the estimate of the Opposition so you won’t think I am cooking the books: they estimated that it would add £2 a week to fuel prices. Of that, £l a week would be automatically recompensed through the Retail Price Index mechanism that uprates pensions. So the great fuss that is being made there is for the average person – I am not talking about people above income support but on pensions – that they would pay an extra £1 a week even assuming that the energy price did not fall further in the next two years as it has in the last two years.

Against that, I think the proposition of people freezing is a difficult one to sustain.

For people who are less well-off of course that sum and that help feed into the Retail Price Index but we have said there will be extra help as well for all people on income-related benefits – not just the pensioners on income-related benefits.

There is another factor for pensioners which the Opposition and our critics happily ignore. A year or so ago when the Community Charge still existed, to help pensioners pay the Community Charge in the base of the pension for the poorest pensioners we increased the sum by £2.80 for a couple and I think £1.80 for a single person. When the Community Charge disappeared, we could have taken that away. We didn’t and so from 1 April for many relatively well-off pensioner couples there will be an extra £2.80 which exceeds by 80 pence the cost estimated by the Opposition if the full 17.5% was implemented two years on.