Stephen Beer, Blog, Stephen Beer

Stephen Beer (www.stephenbeer.com)

Tuesday, May 27, 2008

A way to answer fuel protests

The high price of diesel has brought out the hauliers again. Today they blocked the A40 in London and part of the M4 in Wales. With no room for fiscal manoeuvre, what options are open to the Chancellor?

The main problem is that fuel duties are due to rise by 2p on 1 October (the main figure), yet since the announcement, the oil price (and road fuel with it) has risen substantially, to around $130 per barrel.

In the medium to long term, the higher price will prompt the kind of adjustments people have been calling for to combat climate change. However, in the short term there are significant problems for some arising from the rise in prices. With a slowing economy (and a competitive road haulage market), hauliers will find it difficult to raise their prices to compensate for higher transport costs.

Vehicle Excise Duty is also due to rise for some vehicles next year. While this is being mentioned as a concern now, really the worries are due to higher fuel costs.

If oil prices remain high, the pressure on the government may increase. It does not have to do anything now, though it may need to signal that concerns are being heard and will be addressed as best it can. It should try to avoid sudden changes in tax policy.

And if the oil price remains high towards the end of the summer? I would not be surprised to see the increase in excise duties deferred for another few months. This could perhaps be paid for by a further increase in tax on North Sea oil revenue. Although investment in getting more oil out of the ground needs to be encouraged, expectations of higher oil prices in the long term will be already of great encouragement (much more so since the latest increase in North Sea oil taxes were announced).

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