Monday, January 24, 2011

Sun Fuel Duty Campaign

The Sun newspaper (sic) is running a campaign to keep down fuel duty.

They've commissioned a survey that shows people driving less because of the cost of fuel.

They've also trotted out some old statistics from rightwing thinktank/lobby group the Taxpayers' Alliance, that purport to show that motorists pay twice as much in taxes (fuel duty + VED) than is spent on the roads (roadbuilding + emissions).

UK taxes are not hypothecated. Taxes, whether motoring-rated or otherwise, also pay for the NHS, education, justice, armed forces, and so on. However, if taxes were hypothecated, would motorists be paying enough to offset the costs of motoring to the taxpayer? There's rather more cost to motoring than just roads, but the motor lobby has always been very good at externalizing costs. Other costs borne by the taxpayer include:

Policing of the roads.
  • Cost to the NHS of crashes (injuries and deaths).
  • Cost to the NHS of treating pollution-related illnesses.
  • Cost of delays and congestion due to crashes.
  • Cost of death and injury to the economy, in terms of lost productivity, disability benefits and so on.
  • 'Roadbuilding' usually only includes the cost of engineering. It usually doesn't include the capital cost of land. Park Lane, for example, would likely be worth many hundreds of millions as development land.
  • 'Road Blight'. If you live on or near a busy road, the value of your house will suffer, as will the quality of the whole environment around it.
  • Costs of noise pollution. There's evidence that noise not only annoys and reduces peoples' quality of life, but also has medical ill-effects.

Strangely enough, the problem of 'road blight' and the capital cost of land are obliquely referred to in the TPA's paper, where they cite right-wing economic theory in the area of property rights. However, they then go on to ignore most of the externalities I've listed. The TPA argue that because there are regulations that control and to some extent mitigate some of the harm that motoring does, therefore there should not also be a tax that discourages it. This is inconsistent. The TPA are arguing that motoring taxes amount to more than the costs to the taxpayer of motoring. Yet they are also saying that some of those costs 'don't count'.

These intellectual arguments about whether motoring taxes are fair are rather pointless. You can argue about the 'fairness' of all taxes. What is rather more relevant is what effect changing the level of motoring tax would have. In other words, what would happen if you lowered the fuel price?

First, a bit of recent history. Last time there was an oil price spike, back in 2008, the secondhand prices of SUVs and large petrol cars collapsed. Yet since then, as the oil price relaxed, SUV sales have picked up again. The problem is that the UK car fleet has a 10 or 15-year life, over which the oil price may vary widely. The UK car fleet is purchased by relatively weathly buyers, who then sell the cars on to the less-well-off. The initial purchasers can afford the fuel bills, however the owners of older cars in some cases cannot, yet they have limited choice in the used car market to minimise their fuel bills.

To reduce fuel prices by reducing fuel tax on a permanent basis would make bigger, thirstier cars more affordable to  new car buyers. Its quite possible that the oil price could go up substantially while cars bought new today are still on the road, and in this case it will be the least-well-off motorists who will be paying the price 5 or 10 years down the line for the purchasing decisions made by the well-off. That would be bad news for the economy as a whole.

The TPA seem to view fuel prices simply as a relationship between each individual and the government. It's not. It's a whole complex eco-system, where today's fuel price can have knock-on effects on the economy for a decade or more into the future. If reducing fuel prices simply encourages new car buyers to choose bigger, thirstier cars, in the longer term the least-well-off may actually end up paying more for their car travel rather than less.


  1. I've said in various places that I still don't see people driving as though fuel were expensive. They're still making short trips by car, still speeding, still pointlessly accelerating to reach stationary traffic or red lights.

  2. Still no-one has convinced me why motorists should not pay all their costs through the pump price for fuel. Use less fuel, pay less for fuel, insurance, road building, congestion, wars in oil rich countries, etc.

    The cry goes up "what about people in rural areas?", but what about local shops and pubs etc that have closed because people drive everywhere? There should be perhaps be transitional help for those who really can't avoid driving, until local amenities and shared services revivify.

    This would make it much easier to compare the cost of motoring with other modes, and it would make public transport more affordable. It would encourage car sharing. Car ownership should fall as the marginal cost of motoring falls relative to the fixed costs. People will use taxis / hire cars more. It would promote integrated transport.