Petrol and diesel are at record levels

Since the 4th of January we have seen two different factors leading to increased fuel prices at the pumps.  Firstly we saw an increase of £0.01 per litre  in fuel duty and then the increase in VAT (sales tax)  from 17.5% to 20%, adding around £0.03-0.04 per litre overnight.  Whilst this extra cost is difficult for all and adds further threat to the economy, it was originally designed as a green tax.  The outlook is even more bleak, with crude oil prices rising to near the $100 a barrel level for the first time in a couple of years.  About two thirds of the total cost at the pumps is now tax and duty, so fuel has and still is a major source of income for the government.  It was reported in the press this week, that a single one pence per litre rise nets the government somewhere in the region of £500 million per year.

Also this week we have heard Prime Minister David Cameron annoucing that he is to review his pre-election pledge of the idea of a fuel price stabiliser. The details are somewhat vague, but it would appear that duty could be lowered if oil price rose sufficiently to increase the price at the pumps.  This seems to go against the idea of the tax on fuel in the first place.  After all I think we all appreciate that we are not going to give up our cars easily and the only recognised way is by hitting us in the pocket.  But an arguement made by the various interested consumer groups and industry spokespeople is that the revenue raised from fuel is no used in promoting alternatives, be that grants, R&D, public transport and other ideas.  They has been growing anger of many years from motorist, as the alternatives are not in place and therefore ordinary people have no choice but to accept price hikes.

A breakfast tv interview last week suggested that the members of the independent petrol retailers association we reporting customers starting to suggest that the price was causing them to really think about each mile they drove.  Surely this means that the duty is begining to bite and do exactly what it was meant to do.

Future?

So assuming the price of returns to highs of a few years ago ($140/barrel) and the duty continues to be added at the recent rate, then without doubt, people will drive less.  Is it right for the government to think about reversing the price rises?  With the well documented economic problems and the need to raise more tax and save money, the perfect excuse not to reduce fuel duty is ready made.  But what about the ecomony?  Does the government need some inflation to help off-set the spending shortfalls and allow some growth through it?  What annoys me though is if £500 million extra is raised per one pence, then surely this money could be used to fund more alternatives, and perhaps not just in the eco field of travel, but it could be used to promote green buildings, supporting green economies and other activities.  I can accept a reduction in fuel duty to stimulate the ecomony, but not just to win a few votes.