A price-stabilising fuel duty

Concerns about fuel taxes and road duties are growing.  At the time of the 2000 protests, I had a number of articles published arguing for a "price-stabilising fuel duty".  The purported reason for taxes on fuel being so high is environmental (though in fact on most standard estimates such duties exceed the costs of the associated environmental externalities).  The idea was supposed to be to achieve a price that gives appropriate signals about switching away from carbon-based fuels towards alternative energies.  My contention was that if the government is to fix the price, it might as well do so competently, achieving the price (or around the price) that is its target.  Recent events have presumably driven fuel prices well above the target price (otherwise the logic of the argument would be that fuel duties should previously have been much higher).  Under the scheme I favoured, fuel duty would be automatically inversely related to oil prices, rising as oil prices fall and falling as oil prices rise.  Perhaps it's time to consider this again?

Comments

[Felicity Mountjoy]

Crazy idea. Good for motorists but this would play havoc with the Treasury's revenues.

[Andrew Lilico]

Felicity@07:42

As oil prices rise, tax revenues from oil and fuel rise. A price-stabilising fuel duty (which would not eliminate *all* variation in prices, incidentally) could be designed so as to reduce variation in tax revenues from oil and fuel - increasing the certainty of these tax revenues, not increasing volatility as you allege.

[John W]

Oh, and that's why it's called a price-stabilising tax?

[Yet Another Anon]

Such a scheme would be hugely complicated to manage, would probably involve vast bureaucracy and be hugely expensive, it would leave it wide open for fiddles to be operated and add to legal wrangles between HRMC and businesses.

I think the answer is to start phasing out VED and raise VAT on fuel to 20% and charge VAT on Aviation Fuel, charging VAT on unmetred water & sewerage and scrapping some of the governments new projects such as "Annual MOTs" on men aged 40-75 could also help plug the lost revenue.

[Andrew Lilico]

What bureaucracy and opportunities for fiddles were you imagining, Yet Another Anon? I had in mind a scheme were the duty rate on petrol sold on any particular day was fixed by a formula that depended on a reference (lagged) oil price - probably updated monthly (perhaps because the reference oil price was a monthly average). I don't see what problem that would add to the current situation. If you are concerned about overly frequent duty changes, then the figure could be updated three-monthly.

[Chris H]

Why not a fixed fuel duty that is index linked to GDP growth? This would greatly reduce fuel price volatility while being simple to collect.

Index linking is important because without this, the fixed duty would have to be changed in the budget every year.

Now would be a great time to switch to a fixed duty because the price is high and duty could easily be introduced at a slight discount to the current price.