By Roger Harrabin
Fuel taxes have gone up by 1.28 a litre. The move is an inflation-proofing rise delayed by the Chancellor from the Spring when he said fuel prices were too volatile to risk more taxes.
Including the resulting increase in VAT, the AA Trust calculate the average driver will pay £19.38 a year more. That’s 5.3 pence a day. Motoring groups and hauliers have protested loudly. Do they have a case?
Fuel tax is high compared with the European average, but according to the AA Motoring Trust, drivers in Denmark, Holland and Norway all face higher fuel prices.
Meanwhile the cost of motoring has been steadily falling relative to real incomes over the past few decades according to calculations by the Office for National Statistics. (These are not contested by the AA Trust.)
Motorists groups complain that high fuel prices harm the poorest. The problem is particularly acute in the countryside where poor people may have to drive long distances to find work.
The very poorest households do not own a car. They are harmed instead by the increase in the number of drivers which removes trade for the buses, and has lead to consistent increases in bus fares.
Transport experts say the best way to protect people in the countryside from disproportionately high travel costs is to introduce congestion charging in crowded areas and reduce fuel tax overall. This would be politically contentious but would reduce the demand for travel in congested areas where many drivers are sufficiently wealthy to ignore fuel prices.
Road pricing is being considered by the government but has been ruled out before 2010. Even this sort of scheme might have the undesirable effect of encouraging wealthy commuters with large cars to live even farther from their workplace.
Road taxes have become a major source of government income. The AA Trust calculate that they net £38 billion a year. The Treasury say if they had not inflation-proofed fuel, it would have cost them £300 million this financial year.
Motoring groups want more of the cash invested in transport, particularly in new roads. Transport is a high priority for the government but not so high as health and education. The Department for Transport fear that building new roads in crowded areas generates even more traffic.
It was hauliers, along with farmers, who led the fuel protests of September 2000. Diesel costs in the UK are down about 14% since then, although they are still the highest in Europe.
Small hauliers are most angry about fuel costs. Many are facing bankruptcy, and they suffer most from fuel rises because the industry is so competitive that they often cannot pass on price rises to their customers. Larger firms have longer-term contracts with customers that fluctuate with fuel prices.
Big firms have made money recently by using trucking as a springboard into related areas of warehousing, logistics and supply chain planning. This leads to better organised depots and smart technology to link lorries to customers. It reduces total trucking miles and increases profits. But small truckers do not have the capital or technology to compete in this way.
Small hauliers want the fuel tax cut. But leading analysts warn that this might not solve their problems. The business is so cut-throat that any price cuts are often passed immediately to customers.
The Chancellor’s large cut in truckers Vehicle Excise Duty after the fuel protests did more to help, although it further reduced the imbalance between what hauliers pay to the government and the damage they do to the environment and the road network, according to the Institute for European Environment Policy.
Some experts say the best government policy would be to clamp down on “cowboy” operators who are forcing down haulage rates. This would cut accidents and take dirty trucks off the road, while allowing rates to rise for reputable operators.
But with many hauliers facing personal hardship, there is likely to be continuing pressure whenever fuel prices rise. The government will be watching fuel pumps closely to monitor whether the volatility of oil prices threatens political instability again.
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