Tony Tresigne is a professional money manager of sixteen years' experience and a former Conservative councillor in the London Borough of Richmond.
The price of a litre of petrol has hit an all-time high of £1.20. This price level has had some serious political connotations and the press are speculating about how this will impact on voters.
So who is to blame? Labour’s Lindsay Hoyle claims that motorists “are being legally mugged at the forecourt by petrol companies”. Others blame speculators, rising tax or the impact of reduced refinery and storage capacity on margins. While there may be some truth in all of the above, the move in the price of petrol is really another Brown stealth tax primarily caused by the fall in the value of the Pound.
Below is a long term chart of the price of oil adjusted from Dollars to Pounds.
It clearly demonstrates that although the oil price has almost halved from its $145 peak in Dollar terms, the move in Sterling has been far more muted. The impact of the exchange rate is almost always ignored in articles about petrol. For many years, this was fairly understandable as it made little difference. This is no longer the case. Journalists have not, in the main, recognised that the Pound currently trades with a volatility as high as most emerging market currencies. Drawing inferences from the unadjusted dollar oil price for UK petrol prices with this backdrop becomes fairly meaningless.
So why blame Brown? Has the devaluation of Sterling not been an important part of the stimulus to the UK economy? Isn’t the current economic situation exactly the sort of shock that eurosceptics like myself had in mind when they argued so vociferously to keep the Pound and the flexibility of a floating exchange rate?
The point here is that devaluation, like government borrowing and printing money, was an important element to protect an economy under tremendous pressure. It is a short term palliative that works well in a low inflation environment but a very poor medium term policy. Amongst other things it risks importing inflation as major parts of the global economy recover and the UK does not.
Brown has for his own short term political reasons blocked any credible medium term plan to be put forward to deal with the UK’s fiscal crisis. This adds daily to the level of pressure on the currency. International investors and the rating agencies understand this dynamic well and require the Pound to fall if they are to continue to provide funds to cover Brown’s borrowing. The situation is unsustainable, dangerous and rapidly deteriorating.
This is a complex message to convey to the electorate. For many people, this has been a strange recession where the pain of savers, taxpayers and the unemployed has been masked by the fall in mortgage payments.
So credit where it’s due. The petrol price move is largely due to the weakness of the Pound – and the weakness of the Pound is largely due to Brown. It is yet another stealth tax in all but name. We pay more at the pumps so that Brown can borrow more in the markets.
Speculators and oil companies may be playing a small part but we should not allow that to become the story here. The higher price of petrol is one of the most obvious and painful symptoms of Brown's incompetence and we should not allow it to be put at someone else’s door.