Matt T

Fuel protests and prices

I can't quite see the sense in allowing lorry drivers to block a large part of one of the major roads into London - and surely they are just using up more fuel? Maybe it's not illegal as long as they keep moving.

On the question of oil taxation, John Redwood was quoting some pressure group saying that the government has collected £505m in extra taxation because of the higher oil price in just six weeks - so perhaps (given it has been rising over that period) it is now getting more than £100 a week extra. However when you look into those figures the vast majority - I think £400m - comes from higher taxes on oil company profits, not directly on the motorist.

I can't see any point in the goverment lowering taxes on the oil companies. There is also a problem with lowering the duty on fuel. It might seem reasonable, as essentially those advocating a lowering or not raising of fuel duty imply, that the government should have a target price for oil, say something like £158/barrel, which translates to £1 a litre, at which it believes the price meets its environmental and economic objectives, and as such when the world price is far below that it raises taxes and when it is rising it lowers taxes (note the world price is about 43p a litre [1]). Yet there are at least two major problems with this. First, to a small extent given we are a net importer, and a larger extent if other countries followed this policy, it allows the oil exporting countries a free-ride, immune from the impact on demand of their raising prices. So they'll raise prices and all the money will flow out of the country. Second, it's not at all obvious that the UK governmet is a better judge of the oil price than the market, imperfect as it is, and that any taxation to cover environmental or political externalities of oil should not be on top of the market price, rather than contained within it.

Having said all of that, an increase in the fuel duty at the moment does seem politically a bad idea without some other measure. So what I would do is note that (assuming no declne in demand) a 2p per litre rise in fuel duty will raise the government something like £1.4m per day, or about £0.5bn in a year. This could be refunded to motorists by a reduction in the vehicle excise duty, or even a refund, of £100-£150 per vehicle, including commercial vehicles. Hence the environmental and geopolitical arguments in favour of higher oil taxation are maintained, but 'motorists' are not losers.


[1] There are some complicating factors such as the amount of petrol/gasoline you get from a barrel and various costs in refining and delivery.

Labels: Taxation

posted by Matthew @ 5/27/2008 08:42:00 AM Comments: 0