30. 05. 2008

Fuel Tax Protests

This all feels very much like one of those periodic crunch moments for the sustainability agenda. Fuel-tax protests. Rebellious backbenchers. The kind of febrile atmosphere we last saw in 2000. The Tory press on the war path. NGOs winding themselves up: “Stay green, Gordon, don’t be yellow”.

In 2000, the price of fuel was heading sharply upwards – not as sharply as today, but very uncomfortably. A motley consortium of some of the worst affected citizens (road haulage firms, farmers etc) took to their trucks and their tractors and blockaded key oil facilities in protest against the fuel tax escalator – a Conservative innovation which Labour was quite happily rolling on with. Within a few weeks, the Treasury caved in and agreed to decommission the escalator.

On the face of it, a minor blip. But a strong case has been made since then that it was this one setback that put paid to Treasury’s enthusiasm for the sustainability agenda. Ministers blamed both NGOs for not having come to their aid and the media for having hyped the whole thing into a massive crisis. The image of ‘Mondeo Man’, feral and unforgiving, was on display, virtually, the length and breadth of the Treasury’s corridors of impotence.

Roll forward eight years. It’s all stacking up again, with campaigns both to defer the projected increase in fuel taxes for the second time, and to reverse decisions announced in the budget on increases and vehicle excise duty. Ministers are ‘listening’; U-turns are widely anticipated.

And would that be so awful? Focussing for now on fuel taxes, just stand back for a moment. The essence of using fiscal instruments to change corporate and consumer behaviour relies on three things: transparency (so that people know what’s coming down the track at them); fiscal neutrality (so as not to piss everyone off by using green taxes primarily to increase revenues); and fairness (so that the less well-off in society are not further disadvantaged).

On those three counts, given the dramatic increases in the price of petrol and diesel over the last couple of years, everyone has been taken by surprise by the price hikes, apart from ‘Peak Oil’ campaigners (who have been telling us this was about to happen for years).

Moreover, the less well-off are being disproportionately hammered, and the hikes in fuel taxes are far from fiscally neutral and never have been.

So, economically, socially, ethically, what are the implications of all that?

Your thoughts really welcome. As the Government’s official advisers on such matters, what do you think the SDC’s advice should be?

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Comments

30. 05. 2008
Tim Worstall

"Moreover, the less well-off are being disproportionately hammered, and the hikes in fuel taxes are far from fiscally neutral and never have been.

So, economically, socially, ethically, what are the implications of all that?

Your thoughts really welcome. As the Government’s official advisers on such matters, what do you think the SDC’s advice should be?"

The advice should be that the Government should be consistent. Looking at the Stern Review we get a social cost for CO2 emissions of $85 per tonne. That is thus the correct amount by which emissions should be taxed to cover their social costs (and yes, of course, this does cover climate change issues).

That translates into roughly 11p per litre of petrol. The fuel duty escalator has added some 23p since 1993 to the price of a litre of petrol (without this autumn's proposed rise).

Thus, if the government accepts the conclusions of the Stern Review, which it says that it does, it should cut fuel duty by 12p a litre.

Anyone arguing that it should raise it further is simply rejecting the scientific consensus, aren't they?

30. 05. 2008
Fr. Peter Doodes

Will the fuel escalator rise cut down the number of car journeys, slow traffic down so saving lives, make the country a safer place to live and on top of that reduce pollution? I think so.

We have all lived on the back of cheap oil and now it's payback time, at least people may at last value the worlds resources...

"Stay green Gordon, don't be yellow". Good one Jonathon, but its rather too late for the man I think.

30. 05. 2008
Sean Furey

The argument for fuel duty is, as I understand it, to modify behaviour so that people:
- use more fuel efficient vehicles and drive them more efficiently
- carshare or use public transport
- walk or cycle
- travel less

Because the cost of fuel (until recently) seems to have been going up more slowly than average incomes, this behaviour change hasn't been happening. This has led to widespread congestion and consideration of other measures like congestions charges and road pricing.

Because fuel duty hasn't appeared to affect behaviour, it is seen as purely a government revenue-raiser, which is probably not far from the truth.

Perhaps fuel costs have finally risen to a level where people are thinking twice about their journeys and behaviour change may start to happen?

The other aspect is freight transport. Here in Kent, we are blighted by lorries, Operation Stack and proposals for turning farmland into vast lorry parks and marshalling yards.

Unless imports are reduced, the only solution is a similar modal shift away from road transport. The problem is that high UK fuel prices won't make road-haulage less competitive than rail or sea unless fuel is also expensive on mainland Europe for a prolonged period (not just a currency blip, like at the moment)

Conclusion: the new situations brings new winners and losers. It's hard to know what the SDC should advise until it is clear whether this fuel hike is real or a bubble created by speculators.

(On a flippant note - if expensive fuel kills off Ryanair that's got to be a bonus...)

30. 05. 2008
Bishop Hill

Sean

Import restrictions - that will make everyone poorer, including the truly poor in places like China.

Not a good idea.

30. 05. 2008
Roy Miller
31. 05. 2008
Robert Jones

As we can see from the current trends in oil and food prices we are lacking good governance in the decision making of both national and Supranational political structures.

Our fuel and energy needs for the future need to be met by a supranational understanding of humanity's requirement to seek sustainability on this planet. Maybe this is beyond the remit for the normal democratic cycles of nations. This period is too short and the decisions that need to be made will, at this moment in history, never be accepted and would commit political suicide for any party to promote.

I am concerned that the only voice that is discussing these problems is Prof Jeffrey Sachs adviser to the United Nations general secretary.

We have a government that taxes food distribution systems and fails to tax recreational 'cheap' airflight, and actively encourages the expansion of air systems which are patently unsustainable.

Maybe we need a truwe long term policy of energy usage and your postion ands sustainability adviser to the UK Government needs to ge this point across as at the moment it seems it is falling on deaf ears.

In the coming decades i can foresee the poor of the planet will bear the brunt of the failure of our political structures to offer good governance. High levels of mortality, food shortages, lack of safe drinking water will be the price the poor will pay to enable the wealthy to enjoy minimal loss in the quality of their life.

Robert

31. 05. 2008
Mark Brinkley

>>As the Government’s official advisers on such matters, what do you think the SDC’s advice should be?

I think you should sit back and watch the drama unfold. What you have been hollering for many years and have been unable to achieve is now coming to pass. The oil age is coming to an end.

31. 05. 2008
Andrew Harmsworth

I suspect that the government will postpone the rise again. Ultimately the impact of the fixed tax rise is negligible compared to the unfortunate leap in prices at the pumps over the last few months. What should the SDC advise? Not to plan rises, then postpone them, then consider postponing them again "because they're listening". This dithering is amateurish at best, sloppy at worst and in all cases completely unhelpful to citizens.

01. 06. 2008
Peter Smith

What about the use of speed restrictions as a tool to reduce fuel consumption and thus the amount spent on fuel by rich and poor alike?

This would obviously have the greatest effect on non-urban driving. Speed restrictions could easily reduce fuel consumption by 10%. Emissions would naturally reduce. Additionally, this would encourage behavioural change by making former long, high-speed commuting routes impractical. Lower average speeds would statistically reduce road deaths and injuries - what a bonus!
Now is the time for leadership, not populist focus- group tested inaction.

02. 06. 2008
Bishop Hill

Petra

And obviously all those poor people whose livelihoods depend on tourism are expendable.

01. 06. 2008
Barra

The price needs to be pushed up (or at least kept up) at this sensitive time for investment decisions. The high oil prices as a result of fundamentals (for the most part) means that oil companies are seriously looking at the tar sands etc. We need to ensure that the profits of the increased oil price don't accrue to them to make oil sands attractive. Taxation does this by reducing potential demand for oil derived from tar sands.

On the social justice issue, its time to put citizens income back on the agenda. Call it refundable tax credits if it suits. Or even better, seeing as there is an emerging consensus on equitable personal allocation of "polluting rights", bring in a cap and share system (capandshare [dot] org)/skytrust and call the permits refundable tax credits, determined by the pool of collected revenues, replacing taxation on fuel.

Some musings.

02. 06. 2008
Petra Lucien

It occurs to me that what we need here is a form of rationing rather than across the board increases in fuel prices. A fuel ration could be set for each person/family based on where they live (e.g. if they are 4 miles from the nearest grocery store/school for their child they would get a ration that took this into account. This ration could be fairly generous because AFTER that basic amount of fuel purchased at an affordable price, the cost of fuel to this person/family would go up enormously.

Obviously the ration would have to cover aviation too, and personally I think this should be made much much more expensive. I can't understand how people can fly off for a week or weekend's holiday when the impact on the natural world and the poorer countries is so terrible. A century ago people were happy to take the train down to Blackpool and paddle in the sea. Now people feel hard done by if they can't make a short trip overseas whenever they feel like it.

But to return to rationing (and a two tier price system), it seems to me that this is the only fair way to cut excessive travel without penalising the poor. The current situation is that richer people can continue to drive and fly as much as they like, while poorer families struggle to cope with all the recent increases in the cost of living.

02. 06. 2008
Simon

How about:

Advise the government to pile the fuel escalator into the rail network. Offset the publics distress at road travel with improved rail services!

Re-nationalise the woeful Network Rail and appoint a minister with full responsibility for its operations and answerable to the commons.

Update the whole system, where possible.
Cherry pick ideas from the French, Japanese and the Germans.

If you want people out of their cars and onto trains, the national grid must electrify the "whole rail network" and preferably have a dedicated energy surplus for the train infrastructure. This is where renewables and nuclear could be fased in over time.

Faster trains means more trains and more capacity. This is doable!! - look at France.
Do away with the 1 hour late refundable ticket, this has brought complacency into rail company policies. Reduce this time limit and they would be forced to run a tighter time schedule.

Unfortunately, a wide gauge track appears to be a dream, but if it was done, then maybe, just maybe, I could travel in a less confined space than a battery chicken!!

02. 06. 2008
Rupert Wolfe Murray

A political party should take advantage of the situation and promote a truly "green policy" that is based on a carbon free Britain, taking full advantage of renewables and energy efficiency and telling people "things have to change...oil is running out."

But all spare resources are being wasted on cushioning people from the reality, such as cutting tax on fuel.

We don't have much time to rebuild our infrastrucutre so we can produce energy from renewables and use it on things like an all electric transport system.

02. 06. 2008
Bishop Hill

But Rupert, there's lots of oil, and with oil prices over $60/bl we can convert coal into oil too. No need for rash experiments with carbon-free economies.

03. 06. 2008
Toby Robins

It would be interesting to see the impact on demand of the fuel price increases to assist in deciding on an appropriate strategy. If there is little price sensitivity then there needs to be a greater emphasis on making alternative solutions more attractive.

Certainly simple market forces mean that prices are only going to go one way in the medium term and any actions to moderate can only be short-lived and a failure to acknowledge the elephant in the room.

03. 06. 2008
Biff Vernon

Everyone has been taken by surprise by the price hikes, apart from ‘Peak Oil’ campaigners (who have been telling us this was about to happen for years).

Oh yes, so we have :)

Mark Lynas has a useful contribution on his blog:
http://www.marklynas.org/2008/5/30/why-i-was-wrong-about-rationing

10. 06. 2008
punkscience

Jonathon, although peak oil campaigners have been warning us for decades about the Hubbert Peak, the current pricing crisis is not wholly, or even predominantly the result of this phenomenon. The illegal invasion of a sovereign nation has rather more relevance to this issue, as does the continued belligerence of both the Bush administration and Israel towards the world's fourth biggest oil producer.

Peak oil will amplify the crisis because even OPEC can't turn up the supplies to reduce demand. However, without the current geopolitical insanity, prices would barely have budged.

03. 06. 2008
Kate

As is the norm, 'market forces' will bring about changes in peoples' behaviour to a large extent. The change to a low carbon economy (which I understand to be a governmental aim) is already starting to happen, as fuel economy and emission levels become a pre-requisite for those able to afford a car, for example.

If we are to attain an economy less dependent on fossil fuels (without going down the nuclear route), renewable energy must be given a better kickstart by our Government. It needs to be delivered in a positive way, showing people that there are realistic alternatives to how we live now.

To clean up our old nuclear generators will cost at least £73bn. Imagine what could be achieved if
even a small portion of this money (let alone the cost of any new nuclear facilities) were to be allocated at meaningful levels of grant-aid for installation of microgeneration in the home. A 30 per cent reduction in greenhouse gases at a stroke.

10. 06. 2008
David Mason

Public support for environmental taxes depends on them being seen as necessary, desirable and fair. If petrol price hikes are causing real hardship to many people on low incomes, fuel tax rises will only make the situation worse. If Gordon Brown presses ahead with them, he runs the risk of alienating a substantial block of people and discrediting green taxes.

Our society and our lives are heavily dependent on cheap fossil fuels and the process of moving to a low-carbon economy may involve some painful adjustments for us all. In the long-term, rich or poor, we will all have to adapt to dearer petrol, and when prices are relatively stable fuel tax rises have a role to play in encouraging change. However, when the market is already giving a powerful warning of things to come, it appears uncaring and regressive to add to the pain with tax rises.

The saga of the 10p tax band has badly tarnished The Prime Minister’s reputation as a champion of the poor. Fuel tax increases are likely to be painted as a cynical attempt to raise revenue under the guise of environmentalism and further evidence of a lack of concern for social justice.

Brown should postpone the fuel tax increases while committing himself to sustainable policies which will start us on a journey to a society where the price of petrol and other goods and services reflects their true environmental cost. He is likely to win much more public support for green policies if people are convinced the government will do its best to smooth that road for them.

15. 03. 2012
Patrick Magee

All this talk of running out of oil is just bunk. It seems to be a depressing fact that most people think that the world will basically never change in their lifetime. While ignoring the fact that it actually does. Radically. The fact that mineral oil is running out is maybe contestable, but that ignores a whole slew of technologies which could be used to synthesize fuel. I think the future will be one of high energy consumption, not low. So the use of taxes to modify behaviour is just high-handed arrogance of the self-righteous. All we need to do is perfect better techniques. Nuclear fusion, using solar power to synthesize petrol etc. Just sit back and wait.

25. 02. 2013
Name

The Conservatives introduced this escalator in 1990 and despite its intended purpose at that time, the revenue raised has gone into the Treasury's general coffers. With the pressure to bring down the national deficit why do we not not grasp the nettle and put another 1p on income tax. Why is the level of tax obsessively sacrosanct. I am a 40% taxpayer and would willingly pay more.

Colin Dewsnap

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