Labour Scrap Fuel Tax – Doesn’t Help Oil Addiction
With a rapidly dwindling popularity rating, and under severe pressure from voters as UK petrol (gasoline) prices exceed $8 per gallon, Prime Minister Gordon Brown’s labour government has recently canceled a proposed increase in fuel taxes.
With the postponement of the 2 pence per liter fuel duty rise, fuel duty in the UK today is 17% lower in real terms than it was under the previous conservative government, who made a series of above inflation increases as part of a policy to reduce congestion, pollution and green house gas emissions. Recent crude oil prices have offset the need for tax rises to achieve these goals.
British chancellor Alistair Darling, who recently described high oil prices as a “real problem” in driving global inflation has said that levels of oil production need to be increased in the short term, although dependency on oil will need to be decreased eventually. Few would disagree with the long term need to reduce oil dependence, particularly as current prices are unsustainable if the West is to mitigate serious economic damage and avoid being almost wholly owned by major oil producing nations.
Increasing Production vs Reducing Demand
However, by concentrating on increasing production rather than immediately reducing demand we are in danger of wasting a rare opportunity to accelerate our transition towards an oil independent economy. A drug addict doesn’t benefit by having more drugs available, or by drugs being cheaper. Similarly, the multitude of economic, environmental and political problems caused by oil dependence are not lessened by current price mitigation policies which are focused on production increases.
Like any addiction, kicking the oil habit is going to be painful, and its only going to happen through a constant and gradual process of reducing consumption over many years. So far this year, high prices have already achieved what no government has ever been able to do in encouraging the use of alternative transport options and bolstering sales of fuel efficient vehicles. In the short term, scrapping the 2 pence fuel duty increase is not a bad thing - many people are experiencing significant financial hardship - but as record oil prices start to subside, let’s not waste the opportunity to start kicking the habit now.
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Photo Credit: ricoeurian via flickr Under a Creative Commons License
I wonder what spurned this action, while most countries have decided to hike their fuel prices.? I think the government should hike fuel rates and use the surcharge to offset subsidies and provide funds for eco-friendly alternatives.
I am in favor of fuel taxes as a means of both general government revenue and to send the right signal to people that it is time to work on ways to reduce our dependence on fossil fuels.
On this matter, I am a fan of Al Gore’s sound bite “We should tax what we burn, not what we earn.”
I am not in favor of using that money for any specific purpose other than displacing the need for taxes that discourage behavior that should be encouraged - like reducing the disincentive for people to begin earning money in the normal economy. I am especially not a fan of directing any energy tax revenues back to energy companies in the form of subsidies to help them do alternative energy research. The overall incentive for success in finding a solution is just not there, but the incentive to do “research” is very strong.
Slightly off topic, but I have been associated with enough people in the lower rungs of the economic ladder to know that many prefer to take the risk of working in the underground economy to having 15-20% of their paychecks withheld by the government. Here in the States, nearly 15% of the very first dollar earned goes to the government. (We have a system that makes that look smaller by calling half of it the “employer contribution” but those of us who have been self employed know the real story.)