The BBC is currently obsessing about petrol prices, they obviously see it as a way of having a go at George Osborne. So let’s look at what is behind this. Fuel in Britain is the most expensive in Europe, which means that it is too expensive. This was an unintended consequence of John Major’s government inventing the fuel price escalator, to correct over low fuel prices, whereby the price went up automatically every year at a faster rate (3%) than inflation. When Blair/Brown came to power they racked up the escalator (to 6%) until there was public protests, whereupon they officially got rid of it. But although it was supposedly gone they kept on doing it. Typical socialist duplicity.
George Osborne has inherited these planned rises and although the headline of the budget was that he took a penny a litre off the tax, of far more significance was that he postponed the planned “escalator” increase of 5 pence per litre. So the taxation on fuel is actually now 6 pence a litre cheaper than was planned.
When you buy a litre of petrol about 80% of what you pay is tax, a phenomenal amount, but there are several reasons for having it so high:
- The government desperately needs every penny of tax revenue it can get its hands on to try and slow down the rate at which it is borrowing money. Gordon Brown has dropped the country into a massive hole which will take a huge amount of fixing.
- Petrol is a finite resource that mainly comes from unstable dictatorships like Russia and Saudi Arabia. The less we use the better.
- Burning petrol is supposedly giving us warmer summers, something that is supposed to be bad.
- We have underinvested in infrastructure, including roads. High fuel price is a rationing mechanism to reduce road usage.
- Less traffic means less pollution.
However there is a downside in that high prices of fuel reduce the mobility of people, goods and services and add to the cost of just about everything. Especially badly hit are the rural poor. However there are ways to ameliorate the situation:
- Home working.
- Teleconferencing, eMails etc
- Replace existing vehicles with more economic models.
- Transfer freight to the railways.
- More intelligent logistics.
- Walk or cycle short journeys, especially the kids school run.
This whole issue will be a difficult one for George Osborne to balance. Too high and it will hold back economic growth, too low and he loses out on the advantages listed above. One thing is for sure, I expect to see a lot more bicycles on the road this summer.