Fuel Prices - They Still Don't Get It

It's a while since I last wrote about fuel prices, and not much has changed, but the campaign to lower the petrol price seems to have got even better organized. Unfortunately, they've still not addressed the fundamental problem at the heart of the matter.

When I last wrote, the oil price was at $98.45. I noted there were problems with the Alaskan pipeline and Norwegian oilfields that were interfering with supply. Since that time, the Libyan conflict has been and gone, and the European economies are forecasting lower growth - all factors that should either increase potential supply or reduce demand. Yet today (15 Nov 2011) a barrel of Brent crude will cost you $113.22. Pump prices are still hovering around the £1.40/litre level for diesel.

There will be a Commons debate about fuel prices today. What will they talk about? The fact that the Government changed the tax regime in the last budget, and that spectacularly failed to fix the problem? The fact that the relative tax take has been going down for a while: for every pound drivers spend at the forecourt, about 60p is now going to the Treasury compared to around 80p in every pound between 2001 and 2003? The fact that in the USA where fuel taxes are low, people are much more affected by underlying changes in the oil price (and complain about it a lot more) ? According to the debate's sponsor, Robert Halfon MP, families are being "crucified" by high petrol prices, and are in "fuel poverty" as a result. But I can't see much difference between "crucifixion" by petrol prices, and "crucifixion" by rail fare increases, or VAT increases, food price inflation, losing their job, or any other combination of price inflation or wage stagnation. It's all poverty at the end of the day. You would think a Tory would expect people to help themselves, as many people (and businesses) are doing by driving less and adopting lower-carbon forms of travel. Again, some people have no choice but to drive, and petrol price increases, along with electricity, gas and food price increases, are giving rise to real hardship. There's certainly a case to be made to help people in poverty, but it doesn't follow that a general cut in petrol tax is the best way of doing that, especially considering it will benefit rich car owners more than the poor. I've not seen much evidence that it's the best way to help the economy either. It will benefit businesses that use a lot of fuel. What about businesses that have invested in a lower-carbon business model, making the correct assumption that oil prices will continue rising? Why move the balance away from businesses that are succeeding? Why give the signal that if you're oil-dependent, you'll get bailed out by the government?

Lowering fuel taxes may give a small amount of temporary relief to motorists who have no choice but to drive and are spending a lot of their income on fuel, but it will also disproportionately benefit motorists who are not very hard-pressed, choose to drive big thirsty cars and can well afford to fill them up. Also, taxes will have to rise elsewhere to compensate, at a time when there are calls to lower them to stimulate the economy.

Instead of debating the cost of fuel, which is largely out of the control of the Government, we should be debating how we manage down the use of fuel. Oil dependency is the underlying problem, and it's what is delivering blows to the economy every time the underlying price of oil goes up. That's why a US military thinktank is saying that America needs to cut its oil use by 30% over the next decade.  "I don't really see myself as a treehugger in any way. I look at it as an issue of national security," said Howard Snow, former deputy assistant secretary of the US Navy.

Whingeing about the pump price won't solve anything. Lowering fuel tax will cause people to think they don't need to change their driving habits, and we'll be having exactly the same debate come the next budget. Instead, we need to help businesses and individuals to use less fuel. Done correctly, this will have a much greater positive effect on the economy, because it will have a long-term effect and cause more cash to stay in the UK rather than going into the coffers of oil-producing countries.