Why the government must not cut fuel duty

A plea to George Osborne from “the squeezed middle”

Hysteria in the local rag today with “Petrol crisis: Pump prices near record levels” painting a particularly bleak picture of the state of the nation, as “…prices across Edinburgh and the Lothians crash through the £1.40-a-litre barrier…”

fuel1

From the horse’s mouth:

“You’ve got families and businesses at breaking point. You’ve got fuel hitting record levels and the economy’s on its knees.

“Our plea to the government is simply this – cutting fuel duty substantially is the easiest and quickest way to give the economy the kick it needs to get it growing.”

FairFuelUK via Scotsman.com

As you can imagine, I’ve got more than a few things to say about that…

Hands off the market, George!

Speaking as a motorist and concerned citizen, I don’t think there’s anything fair at all about cutting fuel duty. All that means is that instead of charging gas-guzzlers for their bad habits, all the rest of us find their taxes aren’t going as far as they used to.

Whenever the government cuts tax on fuel, the money has to come from all our pockets instead, in the form of general taxation.

If fuel prices are high, we can use more efficient cars, drive less, use companies that deliver smarter. We can’t choose to pay less tax.

Is that somehow fair, FairFuelUK?

You want our old people and hard working families who rely less on their cars to pay for the ones that think they can’t do without? Not in my name.

As a member of the “squeezed middle”, I like high fuel prices. It means fewer people sitting stationary in traffic jams, belching fumes into the air. It means there’s a big incentive for companies, councils and the government to get smarter and more efficient with the way they transport things.

fuel2

In short, it provides a competitive market where companies (and consumers) are rewarded for doing the right thing, and penalised if they stick to their old fuel-wasting ways.

In a very real way rising fuel duty revenues take some of the strain off my income tax, NI, VAT (etc) payments, letting the government spend that money on schools and the NHS. I can’t even shed crocodile tears for people who insist on driving a few miles across town at 10mph and are now paying for the privilege of spraying families on the pavement with diesel particulates.

Make sure the market can be efficient, George

Just about the only thing that struck a chord with me was the comment by Central Taxis director Tony Kenmuir, who said that a 5p rise at the pump cuts £1,200 from the annual income of a taxi driver.

This is news to me. I don’t routinely travel by taxi but always assumed that prices went up according to inflation, fuel, and other costs like insurance.

For a concerned citizen such as I, it’s very bad news when fuel duty goes up but the costs aren’t passed directly on to the end consumer. If it gets more expensive to ship New Zealand lamb, I want it to cost more on the shelf (and buy local instead). If it costs more to get a taxi because the fuel costs a fortune, I’ll do less of that too.

trailer-washingYou might not want to do this, but that doesn’t mean I should have to subsidise your inefficient lifestyle either!

The cost of delivering to supermarkets and depots should be passed on to customers as directly as possible; competitive companies already do this by striving to improve the efficiency of their logistics operations.

Let’s not stifle that by meddling with the market and cutting fuel duty in a misguided attempt to make things better. The economy is not dying because of the cost of moving things around (if it was, fuel wouldn’t have plunged to 75p/litre at the start of the recession).

I want it expensive and I want it passed on: that way I can choose to avoid it.

Thanks, George.

7 Comments

  1. Amen to that. Many colleagues and friends have decided to try cycling to work because it was costing so much to drive. It’s nice that for once the price signals are aligning with healthy and socially responsible activities, not like normal!

    Another market that’s been thoroughly medalled with is housing and now you have to rob a bank to get one!

  2. Dave

    Thanks for the comment, John.

    Yes, housing is another popular thing for the government to fiddle with. They make it easier for people to borrow huge sums of money in order to “give first time buyers a leg up”. Of course, competition between people with more money to spend just means house prices rise; all that is really achieved is to line the pockets of people who already own property.

    We have a respectable rate of cycle commuting considering we are part of a major financial organisation – around 10% (ballpark). If it was quicker, easier, and cheaper to drive, I’m sure some of them would still be in their cars, enjoying a bit of sedentary disease (at the taxpayers’ expense)…

  3. nelly

    10% is a pretty good number Dave – I reckon our place is more like 1%.

    Partly that low number is because we are in Edinburgh Park and many feel they ‘have to’ drive (even though its only 6 miles from my gaff) – Location was chosen over the old Leith and St Andrew Sq offices partly because transport (read car) and airport access was better. That decision was made circa 20 years ago, but not sure if it would alter now.

  4. Dave

    I suppose it’s difficult for offices with a really large headcount as possible sites are limited. I know that we considered relocating to the west side of town but moved within Leith instead, employee travel arrangements playing a significant role in the selection criteria (though I’m sure there were others!)

    For one reason or another, commuting by bike is predominantly the domain of the professional classes (and in Edinburgh, students too).

    I’d never kick off a startup somewhere like Edinburgh Park (and there’s no danger of me moving to a company based there either). Sure, most people drive anywhere but showers, lockers, and easy access by bike and on foot is essential to acquiring the best staff.

    Disengage business hat!

  5. john scarlett

    scared of being flayed with a dirty bike chain and then crucified on a diamond frame,but a couple of heretical thoughts:

    On the tax issue alone,perversely ,perhaps the overall tax burden would be lower if fuel duty was lower-reduced cost of living,goods and services cheaper,products of industry cheaper, more exports- a more buoyant economy providing more taxes from profits and fuller employment and requiring less from each tax payer. (Obviously the environment would NOT be a beneficiary!)

    Rightly or wrongly the price of fuel is considered a basic cost of living and its increase seems eventually lead to higher wages to compensate,thereby undermining any deterrent effect intended and simply leading to a higher cost for everything ( I think we already have the £2.50 plus cup of coffee!) which in turn leads to a depressed economy requiring higher taxes as no-one can afford to visit here or buy our products. Which in turn leads to…

    I do my 15 mile each way trip to town by bike ,but when the heavens are especially inclement, lack of rural bus services forces me to sin with the car,and as I hear the gurgle of the evil spirit going into the tank,I am struck by what a gigantic sum HM Gov must get in each day from each litre from each person doing the same as me. The actual noxious diesel, is, I think ,only about 40p ,so they get at least £1 in tax for each jam jar of the stuff! I am sure it all goes to very good causes , but I do feel a temporary shift from green to red as my meagre funds are syphoned off to support them in such a blatant way.

  6. Dave

    John,

    Good thoughts. I’m not an economist so I’m not sure what the balance between employment/economic growth and fuel prices would be. It seems intuitive that making fuel free would certainly allow economic expansion – so reducing it as you suggest probably likewise.

    However, there are so many second order effects. We are spending megabucks on a second Forth Crossing and this is somehow considered to boost the economy. This is only true compared with not spending the money at all – I can think of lots of ways to spend the same cash that would provide more jobs (but no master monument to the SNP). Roads in general are ‘needed’ for economic growth, but only because it’s still so cheap to move things by road – circular.

    For individuals I agree that fuel prices are a component of inflation, but then again they offer a competitive advantage in the job market to those who are prepared to ride. For myself, I know I could get a very significant pay rise by moving jobs, but I don’t believe it would be sensible long term for the way I want my career to progress.

    At the moment we have a significant surplus income which maintaining and refuelling two cars for a daily grind would eat into. Instead I can afford to stay in my current job even as we look to upsize the house (OK, in Edinburgh that is going to remove the surplus income quite easily!)

    Thanks for your thoughts.

  7. Dave

    I should add: fuel prices are a component of inflation through mechanisms of higher cost of doing business too. However, this is a huge incentive for businesses to adapt and get lean with their transport movements – cargo bikes for ‘last mile’ for instance – which we just wouldn’t see otherwise.

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