The case for a 10p cut in fuel tax

Watching the oil market is like driving into a storm with your sunroof stuck open – you’re going to get a soaking but there isn’t much you can do about it. The oil-price frenzy has already arrived at a forecourt near you and there is worse to come.

The numbers are staggering. At $135 a barrel, which it hit for the first time last week, oil is up by 35% this year and is more than double the cost a year ago. It is 11 times its level of 10 years ago, and almost six times the price in 2003.

So where will it all end? “Think of a number and double it” has been the best rule for forecasting oil prices, so $200 a barrel no longer seems outlandish, as it did just a few months ago when we saw $100 reached for the first time. There are those of us who think it is a massive financial-market bubble and that the people who brought you the sub-prime crisis are determined to wreck things one way or another. Unlike, say, the dotcom bubble, this one hurts everybody, not just a few geeks and gullible investors.

Driving 12,000 miles a year in a 30mpg petrol car now costs quite a bit more than £2,000 a year – a big chunk of the average salary. Those of us who drive diesels have seen the price rise by 20p a litre since January. I find myself thinking about what I could be buying for the fuel I’m using. A bottle of white wine doesn’t get you far but it has to be a nicer way of spending the money. I also drive more slowly, even persuading myself that being jammed into a sweaty commuter train might be the best way to travel.

Many others are doing the same, says an AA/Populus survey of 17,500 people carried out last month. Nearly two in five have cut down on driving because of higher prices, and more than half of the over65s. Still, at least the roads might be less clogged up with caravans this summer.

I don’t want to encourage disruption, but where are David Handley and his merry band of fuel protesters in all of this? They shot their bolt in September 2000, when petrol and diesel cost a little more than 80p a litre. An attempted repeat protest last December was a flop. There’s an internet campaign to boycott “Big Oil” – Shell and BP – but there’s no evidence it is having much effect. The British don’t seem to be angry enough.

And where is the government? Alistair Darling’s only concession so far is to postpone a 2p per-litre duty hike planned for last month, though it is still scheduled for October. Maurice Fitzpatrick of accountants Grant Thornton calculates that the Treasury is already £735m richer from North Sea oil taxes since the March budget as a result of oil prices escalating. If prices stay close to present levels, the Treasury will be £6 billion better off this year.

As each 1p-a-litre cut in duty costs £500m, that windfall would allow a 12p per-litre cut. But let’s not be greedy: 10 is a number with topical resonance, so let’s have a 10p cut in petrol and diesel duty right now. Environmentalists shouldn’t complain because forecourt prices will still be up on last year, but we’ll all be happier, and we might even think a bit more kindly of the government. It could do with that.

— David Smith is economics editor of The Sunday Times – see his forum at www.economicsuk.com

http://driving.timesonline.co.uk/tol/life_and_style/driving/article3988412.ece

Headline by John Donovan