Prime Minister David Cameron is insisting that he wants the ‘fuel stabiliser’ principle to be part of the budget in March.
The Treasury and some of his Lib-Dem coalition partners are, by contrast, trying to come up with ways of stopping it happening.
The principle is a good one. Unexpected rises in oil prices mean an unexpected fuel tax windfall for Government coffers. The stabiliser would mean that fuel duty could be reduced as oil prices rise, so that the Treasury doesn’t suddenly make a windfall gain over and above its expected income.
As Cameron says, that increase in fuel duty should be at least shared between the Treasury and motorist.
According to Government statistics, the Treasury pocketed an incredible £26bn in fuel duty during 2009 and £3.9bn from the VAT on the duty. (The VAT on fuel duty does, I think, break a UK taxation rule that tax is never levied on tax).
And that’s the core of the problem. Not only do most motorists know that upwards of 60 per cent of the cost of a fill-up goes straight into the Treasury, but that they are facing another pre-planned rise in fuel duty from April.
However, while Cameron may be the PM and be quite right to push to try and halt the runaway rise in fuel prices, the all-powerful Treasury is resisting the introduction of the fuel stabiliser. And his Liberal ministers are clearly no friend of the motorist.
Danny Alexander, Chief Secretary to the Treasury, says that revenue should not “be sacrificed willy-nilly” also saying that when fuel prices rise, taxes from other sources often fall.
Really? You don’t say. Last Saturday, on the A3, it cost £88 to fill the far from empty fuel tank of Autocar’s XJ. With all that cash cascading to the government, it’s obvious that there will be less left in the pot to spend on goods and services.
Energy Secretary Chris Huhne was quoted today as saying that high fuel prices could have a serious effect on employment, but that price should be kept high for environmental reasons. The problem, Huhne my old mate, is that extracting people’s disposable via fuel tax is a very poor way of underpinning growth in the economy.
Had the Jag re-fill cost £78, I might have spent £10 at, say, a café helping prop-up a business which, in turn, employs people and buys in food stuffs from outside suppliers. The café will pay tax on its profits, tax on employing people. The employees will pay tax, as will the outside suppliers.
This technique, known as capitalism, has the double advantage of not only circulating money through the economy and community, which is the only way of keeping the country healthy, but also results in tax from many sources for the government.
Simply extracting massive amounts of tax directly from fuel sales does not circulate money through the local economy. It is the very opposite of encouraging economic growth.
We should also consider the hypocrisy of ‘green tax’. Huhne says the price of fuel should stay high to discourage driving. But Danny Alexander says the Treasury can’t afford to give up a penny of fuel revenue.
Cameron is right, but I have a horrible feeling he won’t get his way.