After a weekend where the Prime Minister has shamed the whole country with his awful attempt to equate the Ukrainian fight for freedom and the right to join the EU with his own, possibly Kremlin-linked Brexit campaign, I am ignoring such issues and am instead concentrating on the Chancellor's Spring Statement (or Budget, but any other name) to come.
The big leak (because that, I am sure is what it is) is in the Mail, where it is suggested that fuel duty could be reduced by 5p a litre to help tackle inflation.
Let's put this in context. Fuel duty is 57.95p per litre in most cases. So the reduction is 8.6%.
Fuel duties are expected to raise £28.8 billion next year. So, a reduction will reduce government revenue by around £2.5 billion.
Let's then assume that fuel increases from around £1.35 a litre when budget forecasts were last prepared to just £2 a litre, which many think very optimistic as a future price. The VAT in the price last autumn was 22.5p per litre. At the new price it will be 33.3p per litre.
So, the Mail is trumpeting a 5p saving when in fact the government take per litre of fuel sold will be going up by 5.8p per litre overall (10.8p VAT increase less 5p fuel duty rebate). Even at current prices (around £1.7 per litre) the government will be winning with this rate of fuel duty rebate.
This is not generosity. This is the government maximising its revenues at cost to us all. And it shows a complete indifference to inflation as well.
So much for a low tax, low inflation Chancellor. This is a high tax, high inflation Chancellor.
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How long can the Tories keep their pretence of being competent with the the economy when they’ve allowed producers and rentiers to price gouge like this?
Is the beginning of the end?
The Major Government fell because if I remember correctly house repossessions soared. With lower interest rates but higher inflation and stagnant wages we may seem to be on the way to the same situation but with slightly different dynamics.
As Mr Warren has observed, the 5p is yet more guff – window dressing – nothing more.
Coming from the other direction……
Gasoline futures (NY Harbour delivery… but still a global wholesale benchmark) trade for spot delivery at USD3.30 a US Gallon…. which is about 67p a litre. Everything else that we pay at the pump is related to distribution costs and tax; distribution costs should be unchanged (give or take a penny or two) and tax is totally within the gift of government.
During 2018 and 2019 the gasoline futures traded between 1.75 and 2.00 (35p to 40p a litre).
The average forecourt price for petrol in 2018/19 was 125p (UK Govt data) so, if the “raw material” has risen by about 30p then a “fair price” for petrol would be 155p which is not far from the last data point (March 14th) which says 160p is average. Right now that seems reasonable but let’s be clear, if petrol prices rise from here (and everyone seems to be predicting that they will) it is either (a) the retailers gouging us or (b) the government taking more tax.
Whether (a) or (b) the government CAN act.
So, I agree that government must cut tax to help the poorest of us but “deep down”, cutting tax on burning fossil fuels just seems wrong!
But, I would note that Gasoline futures are in “backwardation” meaning the spot price is higher than the forward price. ie if you want gasoline NOW it costs $3.30 but for August delivery is is $3.00 and for March next year it is $2.50.
So, I think that it makes sense to say that whatever tax cuts are put in place, they are time limited….. and in that time we need to work our socks off on renewables and fuel efficiency!
I agree with the temporary nature, entirely