More economic gloom

On both sides of the Atlantic the news is of slowdown and decline. US car output has been badly hit, UK housebuilders and construction companies are struggling and UK house prices are now falling in the way expected. There is deteriorating news from retailers. The leading indicators for UK manufacturing look bad.

People in the UK housebuilding and housing related areas are reporting a worse crunch than in previous downturns. This is the result of the badly managed credit and money policies of the last few years, and the result of the run on the Rock and its subsequent nationalisation. The most aggressive large lender of 2006 has been effectively withdrawn from the market by the need to get cash back for the government and because of the competition rules which rightly impede a nationalised subsidised concern making attractive offers to new borrowers.

In the House yesterday afternoon the government was still unable to tell us how it will compensate the 1.1 million remaining losers on lower incomes who have been hit by the abolition of the 10p tax band. The government declined to support a backbench Labour proposal to give them the money. Its promise to come forward with proposals at the time of the Pre Budget Report was sufficient to persuade the Labour rebels to back off. The longer it takes to solve the problem, the worse it is for consumer sentiment and spending power.

Today we turn our attention to Vehicle Excise Duty. Labour rebels are now concerned about the large hikes in VED planned for next year, which include increases on VED on older cars. The Opposition and these Labour MPs point out that hiking VED on them cannot affect behaviour over which cars people buy – if higher VED on high emission cars is a green policy it can only work by applying it to new vehicles.

Meanwhile the truckers will protest in London in an effort to tell the government that high diesel tax and other transport taxes here in the UK is another blow to the UK trucking industry. Far from maximising revenue, it encourages truckers to fill their tanks on the continent, and helps the foreign competitors to the UK businesses.

If the government feels the pain and wants to do something about it, it needs to bring the crazy increases in tax on fuel to a halt, and compensate those on lower incomes who have been clobbered by its tax changes. In this nasty squeeze every little relief would help.

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7 Comments

  1. Richard
    Posted July 2, 2008 at 1:55 pm | Permalink

    I can only laugh when I think back on the number of times that Labour spokesmen have berated the Conservative manifesto policies for being "unfunded".

    Unfortunately they aren't going to be able to beat anyone with that stick for at least the next 10-15 years without being reminded of the "10p tax giveaway by-election bonanza".

  2. Derek
    Posted July 2, 2008 at 3:09 pm | Permalink

    This was always inevitable, I was surprised you thought it wasn't for so long.

  3. mikestallard
    Posted July 2, 2008 at 6:16 pm | Permalink

    I think one of your own successes was to discover that the government is probably £15,000,000,000 at least in debt. Is there any way you could winkle out the exact figure?
    The annual turn over is meant to be about £7,000,000,000, so this means that two years' income would not cover the debt. It is like, say someone on £30,000 being £70,000 in debt. A serious proposition.
    Accordingly, taxes must be increased in the hope that they can get through until something turns up. There doesn't seem to be any hope at all for taxes being lowered.
    And messing Northern Rock up further will alienate even more Northern voters from the Labour party.
    Meanwhile, the Unions are bailing out the party which is about £20,000,000 in debt.
    The good part, of course, is that Mr Brown's reputation as the Iron Chancellor is in tatters. (How arrogant for this minor politician to compare him to the giant Bismarck!) So is the Labour party, which could well be like the Liberals in the 1920s – shot.

  4. adam
    Posted July 2, 2008 at 9:18 pm | Permalink

    I saw Vince Cabal on the BBC. He is my new number one political enemy, up there with jack straw, after what he said about fuel prices.

    He was saying tax cuts were difficult as it was hard to see where the money was going to come from and balancing budgets was not easy.

    Of course politicians have no problems raising taxes and dont see that as a difficult issue as they are not responsible for finding where the extra money will come from.

  5. Matthew Reynolds
    Posted July 2, 2008 at 10:39 pm | Permalink

    The special taxes on North Sea Oil ought to be phased out over five years so that more fields can be explored which would boost supply while making us less reliant on fuel from unstable parts of thw world . While a fuel duty cut in the present climate is understandable longer term we should be looking at bolstering domestic petrol reserves . OPEC will only ever look after number one ( i.e. themselves ) while Russia will probably just use their oil & gas reserves for mischief making . We need nuclear power & green energy to come on-stream with more usage being made of coal with the relevant carbon capture technology being employed . Cars need to be still more fuel efficient and electrical appliances must be less wasteful of electricity . I do appreciate the short to medium term problems that the high oil price is causing so a 14p per litre cut in road fuel duties funded by the North Sea Oil tax windfall seems sensible . But longer term we need reforms to go green so that the UK is less at risk from rising oil prices in future . One idea could be to axe the winter fuel allowance & raise VAT on domestic fuel & power to 17.5% over six years . The money produced would fund free units of electricity for households with at least one occupant aged 60 or older during the Autumn/Winter period aslong as they used a green energy supplier . That would cut fuel poverty while helping the environment as a growing share of the population ( the over 60's ) would be encouraged to switch to green energy suppliers . VED could be phased out over five years as it is just an unfair poll tax that does nothing to reduce congestion or emmissions while hurting the least well off . Ending that & North Sea Oil surcharge taxes would simplify taxation . Hammering the motorist & having greedy taxes on car users just pushes up inflation and limts domestic fuel supplies and as such has helped cause this mess . Driving White Van Man & small business out of business is economic madness – sound environmentalism needs a modicum of green taxation ( higher VAT on fuel & power ) to cut energy usage – but cutting VAT on energy efficient appliances to 5% might also help too . Incentives & penalties are needed to correct market failure as is clean coal & nuclear and greater exploration of North Sea Oil . I feel that the facts speak for themselves .

  6. Lee
    Posted July 5, 2008 at 11:49 am | Permalink

    "The Opposition and these Labour MPs point out that hiking VED on them cannot affect behaviour over which cars people buy"

    I'm afraid that you're wrong on this point. Higher VED on older vehicles can alter buying behaviour, just not in the way desired. It makes older cars more expensive and less valuable on the second hand market. Which in turn leaves a consumer with less of a discount on a new, greener, car and more likely to stick with the older, dirtier, vehicle. Doh!

  7. Acorn
    Posted July 6, 2008 at 1:15 pm | Permalink

    Having returned from the south of France,Saturday; Redwood fans may be interested to know that diesel fuel is now at 1.51 euro. It is 1.55 euro for the Low Sulphur version. The French still sell two grades of diesel as well as two grades of petrol.

    Petrol and Diesel are now the same price. I made my first mistake, when I asked the taxi driver why diesel had gone up so much – it always used to be considerably cheaper in France. Unfortunately he spoke very good English and I was given a thirty minute monologue of the state of the French economy – he reverted to French for the expletives.

    I understood what he meant when he said the fare was 68 euro. Nice Airport to St Jean Cap Ferrat; a distance of ten miles which takes about 30 minutes on a Saturday morning. It was 55 euro coming back using a local taxi to the airport.

    So what's the problem? That would be the 1.21 euro to the pound sterling – about 7.9 francs in old money. Looking back through my memoirs; I see I was getting 10.6 francs to the pond in 2000 – about 1.61 euro equivalent.

    My second mistake was asking the proprietor of one of those little family restaurants the French are so good at; "why do you still put the price in francs on the bottom of the bill". He must have been related to the taxi driver; same lecture. Basically he says, it all went mammaries-up when the introduced the Euro currency notes and coins. Everything got rounded up to the nearest euro; all along the supply chain. Bars and restaurants only price things in half euro when they are desperate!

    Anyway; managed to avoid the best fuel protest convoy yet seen on the autoroute A8. We should send our truckers over there to get some lessons on how to organise a protest; French style.

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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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