Friday, September 16

The price of vehicle fuel.

Picture - Peter Troy watching the price of fuel at the pumps in the Prime Minister's
Constituency of Sedgefield.

The front page headline in The Sunday Telegraph was typical, '' Fuel protests will bring Britain to a standstill''.

Wthout doubt it was of the belief of the British press that the hugely disruptive protests in September 2000, organised by the Peoples Fuel Lobby, would be repeated this week with blockades at fuel distribution centres, refineries and motorways across the country.

The Fuel Lobby (curiously 'people' has been dropped from the name of the group) failed to muster support to mount their planned three day protest. The publicity did however manage to put the issue of high fuel prices once again at the top of the political agenda; but to what long term effect?

The reason that vehicle fuel is so very costly in the UK and has risen in twelve months from around 80p a litre(£3.64 per gallon) to a current average of 97 pence (£4.41 per gallon) is clearly not understood by the British public.

Crude oil prices have more than doubled since Spring of last year when demand grew at its fastest pace for 30 years, in part due to the rapid expansion of the Chinese economy and the strong performance of industry in the US.

Oil production has failed to increase due to decades of under investment in refineries and the reluctance of Opec, the oil cartel to bolster production.

In, turn, price inflation has enabled the oil giants to pass on the cost in the form of increased oil prices to consumers.

Unleaded petrol tax duty in the UK is 47.1 pence per litre (£2.14 per gallon), VAT is levied on the petrol price as well as the duty. As has been stated by the editor of this blog both here and in the press that if the Chancellor were to not charge VAT on the duty (a tax on a tax) as well as the product price the price of fuel at the pumps would be lowered by 10-12 pence per litre.

The reason that this blog is so keen to promote the abolition of VAT on fuel duty is quite simple, it is the only reduction option available to the UK's Chancellor of the Exchequer.

To explain: The basic product price is determined by supply and demand as well as the might of Opec. Secondly, the EU finance ministers confirmed at a meeting last week in Manchester to continue with the agreement made in May 2000 that no member state would reduce fuel duty. The rate of VAT is in
fect an EU competence and thus can not be lowered by any UK Chancellor. Thus the proposed manoeuvre of removing the charge of VAT on duty (and only levying it on the actual petrol price) is indeed the only option that is open to the Rt. Hon. Gordon Brown if he were intent (under political pressure) upon reducing fuel prices at the pumps in the UK.

Why this precise request has not been made by any lobbying organisation, or indeed any political party, must for the moment at least remain a mystery.

It is expected that the chancellor will, yet again, postpone this years annual inflationary rise of the rate of duty at a cost to the Treasury of some £1.2 billion.

It is all very well and comforting to believe that there will not be another tax increase on petrol, but the fact remains that the government is getting a massive windfall from the increased price. That, perhaps, would explain why the government is not keen to abolish the tax on a tax at the pumps but it does not explain why the idea has not caught on in the media or with the so called pressure groups or opposition political parties.

If taxation is the fuel for revolutions (English Civil War and the American War of Independence) then a tax on a tax should be very revolting.
Flashback to the fuel protests of September 2000.
'Stop Press' > Supermarket retailer Asda this morning announced it would cut the cost of petrol to a maximum of 89.9p per litre at its 158 petrol stations and diesel to 92.9p per litre.


Johnny Jazz said...

Cool blog, up until the last election '2 jags' was my MP. Nice to see another Brit with a relevant blog. Keep up the good work, not a spam 'bot' in sight.

Shelagh said...

I absolutely agree on this!

Particularly because the benefit of reducing or abolishing VAT is felt entirely by private individuals or very small businesses under the VAT threshold.

And maybe it is precisely because it would not benefit big business that there is no great imeptus behind it?