Tuesday, March 1, 2011

Balls-up on Petrol VAT

Ed Balls has called for the Government to reverse the VAT rise on motor fuels.

This is transparent political opportunism, trying to outflank the Tories and position for the 'middle ground' of the motoring vote.

However the reality is such a reversal would be deeply regressive. The people who benefit most would be motorists who drive the thirstiest cars, and those who drive the most miles. In case he hasn't noticed, there are a few other, more essential things, such as food and heating oil which are suffering from high price inflation. Not to mention bus and train fares. It would be a lot more progressive to give every family in the country a fixed sum as a bonus to compensate for inflation. Alternatively, the shadow chancellor might propose giving people more alternatives to using the car - investing in cycling and public transport for example.

But no. Mr Balls is proposing to incentivise driving - effectively to make driving relatively cheaper than greener forms of transport. There's no particular reason to rely on fuel prices to force cars off the road, but if you're going to reduce the price of driving, you need to take other action to ensure we don't become more car-dependent. This is exactly what the Labour government didn't do in its 13 years in power, during which time motoring costs reduced significantly. The boom years would have been the right time to invest in greener transport, preparing the country for the time when oil becomes pricier. Labour's other Ed (Miliband) needs to detail how he's going to do things differently next time.


  1. When I heard it, I thought it was a load of balls and I was right!

  2. If you want to reduce the cost of motoring (if that is what turns you on) or if you want to disincentivise driving without increasing the the overall cost of owning a car, there are other ways - an EU country can set two VAT rates for different things, and in the UK that is 5% and 20%. Apply 5% to things like repairs and servicing, which are largely fixed costs, and possibly even to purchase price of a car (lower emissions bands), but maintain tax and duties on fuel at the highest possible level. It wouldn't be hard to compute the break-even point for an average 10,000/year driver, so they pay the same for the average but are more penalised for high mileage and more incentivised to low.

    A few years ago the Inland Revenue did a consultation on car taxation and this is what I suggested to them (I do tax for a living). I got a polite reply but of course nothing changed.

    I see that some Labour local authorities are not buying Balls' balls - Islington still proposes emissions-band related parking charges.

  3. While I'm 100% behind reducing car use, doesn't high tax on fuel simply contribute to overall high prices on everything else we buy and contribute to inflation and a lower standard of living?
    There isn't the infrastructure in place for transport to simply switch to rail at the moment. Is there a way to make driving one's car more expensive without penalising everyone (and I'm thinking of the disabled as well here)?