Sunday, 27 March 2011

Nonsense about fuel taxes

Osborne in his budget has cut the duty on petrol and intends to replace the lost revenue with an additional levy on North Sea oil production.  (The cut is 1p a litre, but there would have been a 5p increase under the previous policy)

The Labour party reaction to this is that the levy will just be passed on to consumers.  No it won't.  Refiners buy crude oil on the world market: North Sea producers are in competition with other oil producers and can't raise their prices at will.

The ConDem's claim is that the levy will have no effect at all beyond relieving producers of windfall profits.  Again not so.  The effect will be to make investment in North Sea production relatively less attractive, with the result that reserves will be left in the ground.  So the UK will be importing more oil in the medium term, making us less well off.

In the long term, oil prices will continue to rise.  Using North Sea reserves later rather than sooner might be just the thing for our grandchildren.  So this is a far-sighted policy.

The one thing politicians agree on is that petrol prices should be lower because prevailing prices make it expensive for people to drive around.  The fact that they agree is a clue that they're all wrong.  Driving motor cars uses up scarce resources, pollutes the environment, promotes climate change, causes accidents, makes it dangerous to walk or cycle, deprives people of exercise they need, and creates traffic congestion.  Just because people like doing these things doesn't mean it should be made cheap to do them.

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