Mark Sinclair's Blog: 26 April 2010 - Are there hidden dangers in a fuel price stabiliser?
26 April 2010
Mark Sinclair is boss of leasing firm Alphabet
I've written about the law of unintended consequences on this blog page before.
General elections, of course, are fertile ground for this insidious syndrome. Several times a day, politicians are tempted to promise something - anything - in order to gain a smidgen of advantage over their rivals.
And when you're campaigning on a platform of change, making rash promises about changing things becomes an occupational hazard.
Hence we have the exclusive revelation to Business Car by Conservative transport spokesman Theresa Villiers that her party would, if elected, change the company car tax system.
That would be the system that isn't especially broken and which few people believe to be in need of fixing. Still, "tidying up" company car BIK isn't mentioned in the Conservatives' manifesto so I expect that this idea will eventually be filed away under the heading of 'mid-election promises that didn't really count.'
But it was another election pledge - one that does feature in the manifesto - that prompted me to mention unintended consequences. If they win, the Conservatives have pledged to consult on a 'Fair Fuel Stabiliser', which would reduce fuel duty when oil prices rose and vice versa.
On the face of it, the idea seems to make sense. Duty and VAT account for around 60% of the pump price so there's plenty of room to use taxes as a buffer. The proposal also recognises that highly volatile prices can be as difficult and damaging for business as relentlessly high ones.
But the policy, if enacted, would also be a big step along the road towards full-on price controls. Stabilising wouldn't be a big issue if the price of oil just went up or down a little at a time. That would only require the Government's Stabiliser-in-Chief to make small adjustments to the knobs on his Fuel Duty-ometer to keep price movements in check at the pumps
But what if prices took off again as they did in 2008? Would the Government keep on reducing one of its key sources of ready cash in order to hold down prices? Or would it have to let prices rise despite giving voters the impression that it was directly responsible for the cost of filling up?
The political pressure to take a stand and impose price controls would become almost irresistible. But price controls cause shortages because producers and refiners, if forced to sell fuel at a loss in one country, tend to send it somewhere else.
American drivers discovered this the hard way during the OPEC oil embargo 30 years ago, when the US administration refused to let domestic prices rise to the world level. It would happen here too: price controls would cause queues to form and traffic to melt away faster than you could say 'Eyjafjallajokull'.
My guess is that it won't happen. The lesson was learned in the '80s: expensive fuel is better than no fuel at all. That's especially true for businesses. The best 'stabiliser' if you run a fleet will be to keep steadily driving down CO2 emissions and eliminating excessive mileage over the life of the next Parliament.
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