Andrew Lilico: It's time to introduce that fuel duty stabiliser

Andrew Lilico is an economist and a Director and Principal of Europe Economics.

George Osborne should introduce a fuel stabiliser, a tax rising faster when oil prices are below trend, and vice versa.  Taxes comprise nearly two thirds of petrol prices - in essence, the government chooses the price, doing so for environmental reasons - to provide incentives for low-fuel-consumption cars and green alternatives.  

It might as well choose its price competently, not having its chosen level lost if oil prices rise or fall rapidly, providing more stable incentives for green investment.  Historically, fuel duties have tended, anyway, to rise faster when oil prices were low and vice versa. 

A fuel stabiliser would make this transparent.  And a fuel stabiliser would, at present, counteract rising petrol bills in inflation.  Since it would be neutral over an oil price cycle, its introduction would have little effect upon the government’s fiscal objective of eliminating the structural current deficit (i.e. the deficit over a cycle).