"It is within the British Government’s gift to alleviate the pressure on all of us"
This week, the cost of diesel has risen to around 191p per lite, pushing the price of re-fuelling the average family car in the UK to over £100. This shock increase of over 50p per litre since the same time last year will have thrown the finances of many families into disarray, at a time when we know that around our country working people are struggling.
Whilst the primary driver of the rapid rise in oil and fuel prices is the conflict in the Middle East and restrictions on the free passage of ships in the Strait of Hormuz, a large chunk of the price we pay to fill our fuel tanks can be attributed to Government policy. So at this difficult time, it is within the British Government’s gift to alleviate the pressure on all of us.
Few people realise just how much we tax fuel. Fuel duty currently sits at 52.95p per litre, and VAT (20%) is applied on top of fuel duty, meaning in effect motorists are taxed on a tax. And additionally, after a 15-year freeze, fuel duty is set to rise this September by 5p per litre.
Around the world, governments are stepping up to help motorists. In Australia, the Federal Government announced it would halve fuel excise tax for three months to ease pressure on commuters and two Australian states, Victoria and Tasmania, have announced free public transport to give those who usually drive a much cheaper alternative. Japan is actively subsidising fuel suppliers to prevent sharp increases reaching consumers. The Spanish and Italians are directly cutting taxes to reduce fuel prices, lowering pump prices by up to 30 cents per litre. So, in terms of an active response, there are clear examples for our Government to follow.
And this crisis, which at its core is supply side, should be a wake up call.
The UK currently sits on 3 billion barrels of oil and gas in the North Sea, but we’ve stopped issuing new licenses for extraction. Meanwhile, we continue to buy from Norway – Norway is drilling from the same North Sea and making a fortune. They even have a successful Sovereign Wealth fund. And today, just to drill it home, North Sea oil prices hit a record high.
Britain should get drilling again and use the tax revenue from oil and gas to cut costs for British families.
In the short term, we know the Government currently doesn’t have much fiscal headroom, but if it has the political will to cut or at least continue the freeze on fuel duty, then it surely can do so. It’s been able to find over £2.5 billion, for example, to remove the two-child benefit cap. There are cuts that can be made to ensure that continuing the freeze on fuel duty is costed.
Ultimately, the Chancellor has the tools to protect the finances of millions of working families. She should use them.
