The Treasury fleeces the motorist – again

I have been trying to find out from the Treasury how much extra money they are taking from us through their highway robbery at the pumps. It is quite obvious that with oil at $127 a barrel, up from the $84 a barrel used for the budget forecast, they are coining it in.

A great deal of ingenuity has gone into not answering my simple questions about the windfall. Meanwhile, the British Chambers of Commerce have been busy with the tax tables and the calculator. They have come up with the stunning figure of an extra £505 million of tax in just six weeks from oil and motor fuel – a mixture of North Sea tax and extra VAT on the fuel price.

With tax now taking more than 70p a litre at the pump, it is a huge money-spinner. I do wish the oil companies would put, on the pump or on the receipt, the split between the price of the fuel and the take of the govenment. Too many people still believe most of the cash goes to fabulously rich oil companies, rather than understanding that the bulk of the cash lifted from them goes straight to the government. On top of the pump taxes there are also the taxes on oil-company profits and production.

The very least the government could do now is to announce it does not need to add an extra 2p to the tax on fuel this autumn, and to cut fuel duty back so that the revenue it collects is more in line with the budget forecast. This would have a welcome impact of helping to reduce the inflation rate modestly at a time of runaway energy and food prices.

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14 Comments

  1. Posted May 20, 2008 at 11:41 am | Permalink

    You must be kidding! Darling needs every penny he can get his hands on, and if following through on a previous announcement bags his some extra money then he will stay on course and hope the voters don't notice.
    http://lettersfromatory.wordpress.com

  2. David Burch
    Posted May 20, 2008 at 1:34 pm | Permalink

    My concern here is that although sold as a"green" tax it is taxing a good that has inelastic demand and therefore all governments have a "money spinner" and the current one very much looks to it as that. I think they less care about the inflationary aspect. As a consumer driven by price I run a more fuel efficient diesel which visits the pumps less often. I am wondering why that cars have not become dramatically more fuel efficient since the 1980's. I then realise one thing that it is neither in the industries or the government best interest. So any green benefit will not occur until the oil starts to run out. I would happliy pay less for fuel and visit the pumps less often. I can see no gain other than me continuing the run a diesel car and stumping up the ever increasing taxes.

  3. Matthew
    Posted May 20, 2008 at 2:25 pm | Permalink

    I sday two things

    1. Is reducing the petrol tax or not increasing it the best option, particularly given the need for energy conservation (whcih you note the government should be supporting below)? This money raises can lower public borrowing by the same sum, or be used for an income tax rebate. Or even a road tax rebate.

    2. The vast majority of that £505m is from oil company profits, surely? VAT on a litre of petrol has risen by about 1p, so at a consumption rate of a 2m barrels of oil per day, that would be about £1.5m a day, or £120m over six weeks.

    Oil company profits are important, but they must have increased massively, and I don't think borrowing should be higher or income taxes higher just to keep them lower.

  4. David Burch
    Posted May 20, 2008 at 2:53 pm | Permalink

    Just popped out for lunch to fill up the car and paid 1.259p per litre of diesel. I think it is very important that the Conservative Party offer an alternative and it got me thinking. How about removing VAT from petrol and diesel and fixing the duty as the only tax. This would stop the windfall tax take the government is currently experiencing and not create so much unease over who exactly is profiteering from the rising oil price.

  5. APL
    Posted May 20, 2008 at 3:08 pm | Permalink

    David Burch: "I am wondering why that cars have not become dramatically more fuel efficient since the 1980’s. I then realise one thing that it is neither in the industries or the government best interest."

    Simple physical constraints, actually. No reason to look for a conspiricy. There is only so much energy in a given quantity of fuel.

    On the one hand, there are increasing demands for more features in a vehicle, air bags, side impact barriers, anti role, etc, these type of things add weight. The requirement to run with the side lights on all the time – soon, thanks to the EU a requirement to run with the headlights dipped all the time, both lead to increased fuel consumption.

    To ask for dramatically increased fuel efficient is unrealistic (in my opinion) when you consider the conflicting requirements imposed on vehicle manufacturers by government.

    Physics and chemistry dictate you can only move a given mass a given distance with a given amount of fuel.

    JR: "I do wish the oil companies would put, on the pump or on the receipt, the split between the price of the fuel and the take of the govenment. "

    I agree, and I think something similar has been discussed on your blog in the past. Then, if I recall correctly, the consensus was that while it wasn't outright illegal to do so, companies don't to keep on the right side of the labarynthine trading standards regulations.

    One area where the US has this right. Sales tax is clearly marked on just about everything you buy, also it is added at the point of sale, which brings it much more directly to the customers attention.

  6. David Burch
    Posted May 20, 2008 at 3:59 pm | Permalink

    APL – point taken but as Jeremy Clarkson said recently "hey kids if you want to do something really useful invent the hydrogen cell …". Sometimes I feel in the traffic jams a power pack such as one that has powered milk floats for the last thirty years would be useful. Whats the point of 130BHP diesel engine when you can only need / use a 1BHP electric one. The trick is when to switch sources!

    The solution to the increased cost from the consumer is to look for ways around the problem. There are many avenues that need to be explored. I will still keep my conspiracy theory though!

  7. GeoffH
    Posted May 20, 2008 at 4:00 pm | Permalink

    Showing the tax on fuel receipts is only a small but necessary step.

    If you really want the public to understand how much tax they pay, then abolish PAYE and make them sign a cheque to the Inland Revenue (as all self-employed currently do) twice a year.

    That would concentrate the mind, and tighten the sphincter to, I can tell you!

  8. Travis Bickle
    Posted May 20, 2008 at 4:27 pm | Permalink

    GeoffH

    Indeed. Especially when those cheques to HMRC comprise an interest free advance on next year's predicted tax bill (which of course if you miscalculate you have to pay interest on!)

  9. APL
    Posted May 20, 2008 at 4:41 pm | Permalink

    "To ask for dramatically increased fuel efficient is unrealistic .."

    On second thoughts, when the government mandates all those extra features (don't forget the beacon to be used in conjunction with the Galileo EU tracking system) that add weight to the vehicle, or use up energy for situations that should be left to the discretion of the driver (mandating lights during the day). One realises, we are already getting vastly better fuel efficiency that we were in the '80s, it is just that because of all the baggage the government forces us to carry around in the vehicle, the extra fuel efficiency we do recieve – thanks to the massive R&D put into this area by the vehicle manafacturers, the end user doesn't actually see an improvement.

  10. Thatcher-right
    Posted May 20, 2008 at 5:42 pm | Permalink

    Fuel taxes and congestion charges are a perfectly valid approach to limit the demand for space on overcrowded roads. The logical extension is that the free market should be able to provide alternative capacity (new roads) and take its slice of the additional revenue. We could even have alternative suppliers bidding (both in terms of cash paid and quality of service guarantees) for the right to manage a section of the network in return for this revenue.

    I recognise, however, that the current government's strategy of covert and massive taxation of motorists, has made this a politically impossible approach to adopt.

  11. Matthew
    Posted May 20, 2008 at 6:55 pm | Permalink

    But it doesn't really make sense to say the goverment is profiteering from the fuel price rise, even if it does nothing it simply means it is borrowing less from the public mainly via taxation of oil company profits. It might, I would perhaps agree, be more transparent to impose a windfall tax on the oil companies, as Mrs Thatcher and Geoffrey Howe did.

    I can't see a new Conservative government taking such a radical policy as removing VAT on petrol (even if the EU would allow)- it would lose out billions of pounds of revenue, destroy its green credentials, all whilst bolstering oil company profits and foreign oil suppliers, and (given the oil price is bound to fall) all for very little gain.

  12. Posted May 22, 2008 at 12:09 am | Permalink

    The government may well be raking in loadamoney from petrol tax – but that is money people will now not have available to spend on other things, and so the tax take there will correspondingly decline.

    The government are stifling growth so there is less to invest so tax revenues will continue to decline in future as well.

    And all of this cash squeeze means less investment by people in pensions so storing up more poverty and benefits payouts in future.

    Bad news for a bad government

  13. William
    Posted May 23, 2008 at 5:14 am | Permalink

    One option is to have an absolute limit on the amount of tax charged on every litre of petrol/diesel. If the oil price rises, causing a rise in the basic cost of petrol and diesel, such that VAT on the increase will take the total amount of tax above the limit, duty could be reduced accordingly.

    This would not prevent people complaining about the levels of duty but would allow a rare opportunity for the government to be seen to be acting fairly.

  14. Matthew
    Posted May 27, 2008 at 11:07 am | Permalink

    William – I think this is a disastrous idea for the simple reason that (particularly if copied elsewhere) it means for Opec that they face no contraints on increasing their prices. For any price rise they make is matched by a tax cut, and so the price to the consumer remains the same. Given this you can be pretty sure Opec's prices would soar.

    A better idea, I would suggest, is to rebate some of the extra tax earned (or all of it) off the road tax.

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    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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