Treasury pumpLast Parliament, George Osborne spent quite a lot of time and money on persuading voters that he was the Motorists’ Chancellor. His £15 billion scheme for renovating the country’s roads was probably the most dramatic, single expression of this, but more consistent were his actions to contain fuel duty. From a combination of freezes, postponements and actual cuts, the rate of duty is now about 20 percentage points lower than it would have been otherwise.

But what’s this (£) in today’s Sun on Sunday? A “whistleblower” is claiming that Osborne now has a dastardly plan to actually increase fuel duty – but pass it off as a freeze. Apparently, the Chancellor wants to raise duty in line with inflation. This would take it from 58 pence now to about 65 pence by the end of this Parliament, provided that inflation behaves as forecast, and net the Treasury an extra £4 billion a year in the process. Is Osborne really going to undermine all the carefully considered politics of the past five years?

At first glance, this may seem like an unfair charge to make against the Chancellor. Raising costs in line with inflation is often seen as a kindness, hence why the Conservative manifesto included a promise to “keep commuter rail fares frozen in real terms for the whole of the next Parliament”.

But when it comes to fuel duty there’s a twofold problem. First, Osborne wasn’t giving motorists a real-terms freeze in the last Parliament. He was freezing duty before inflation was accounted for – which is actually a real-terms cut. This means that, if he implements this new plan, the Chancellor will have gone from offering a “freeze” that is actually a cut, to a “freeze” that will see duty levels go up. Naturally, some people may be annoyed at the difference.

And the second problem is that, unlike rail fares, fuel duty comes on top of something that already inflates or deflates in cost – and that is the fuel itself. Petrol prices have risen by almost 10 pence a litre since the beginning of the year, quite apart from anything that the Chancellor has done in any of his Budgets. Increasing fuel duty, even if only by the rate of inflation, will add to that upwards momentum. Wallets will be left thinner.

So why is Osborne toying with this idea? It’s probably actually got something to do with those fluctuations in fuel prices. As I’ve pointed out before, one of the most telling things he said in the last Parliament was this, from his New Year’s address of 2014:

“…there’s no point pretending that there’s some magic wand a Chancellor can wave to make the whole country feel richer than it actually is, or that I can control the global oil price from an office in Whitehall.”

Osborne has tried waving a wand over fuel duty, forgoing about £4 billion in revenues as a result – and yet petrol prices still rise and fall with the global oil markets. Perhaps he’s now decided that he’d prefer the money to the limited political gains.

If so, it would almost be an encouraging sign. No-one really wishes for higher taxes. But with so many tax cuts recklessly scheduled for this Parliament, a spot of fiscal consolidation won’t go amiss. The Conservatives can never forget the Great Promise that they made years ago, which was to reduce the deficit to naught.

16 comments for: Osborne’s fuel dilemma

Leave a Reply

You must be logged in to post a comment.