Mark Sinclair's blog: 18 March 2011 - George should drink to scrapping the duty escalator
18 March 2011
Mark Sinclair is boss of leasing firm Alphabet
You can get it for £1.30 a litre at Tesco and £1.25 at Sainsbury's. At some motorway service stations, it's now more than £2.50 a litre.
What are we talking about? Bottled water, of course - no-one would pay £2.50 a litre for diesel!
I admit that contrasting fuel with water is very much an apples vs. oranges comparison, but the fact that we're prepared to pay getting on for twice as much for water as we do for petrol speaks volumes about the workings of a complex industrial economy.
Petrol itself is an amazingly potent material. A tankful of the stuff packs nearly 600kWh of energy. That's roughly the same as the output of a person rowing a boat flat out for five hours a day for five years. Try getting anyone to do that for £78.
But that's what people mean when they talk about 'cheap' oil. Ultimately, it is the huge surplus of low cost energy in petrol and other fossil fuels that's enabled us to create today's economy - where people think nothing buying a litre bottle of water at service station for £2.50 when drawing almost the same stuff from a domestic tap costs a fraction of a penny.
Of course, there are two big differences between fuel and water. One is that you won't live long if you drink fuel, or don't drink water. The other is that Sainsbury's offers a choice of prices for its bottled water, starting at 10p a litre, whereas diesel currently costs a few pence either side of £1.40 wherever you buy it.
That is more than twice the average pump price in real terms (i.e. adjusted for inflation) over the past 30 years. It's still amazingly cheap in energy terms but unfortunately that's no consolation to fleets or private motorists.
And that's why it is time for the Government to drop the idea that fuel tax needs to rise faster than inflation every year. The justification for imposing this added burden on businesses and motorists used to be that, without it, car use would increase until every inch of UK road was gridlocked.
Ironically, the only thing that's ever brought UK roads to a standstill was the fuel tax escalator itself, when it sparked the 2000 fuel protest. Otherwise, traffic and congestion merrily continued their upward trajectory from 1979 to 2007.
Then everything changed. The Government's own figures show that since 2007 traffic has dropped by 4%; delays on inter-urban routes by 25%, and road fuel consumption is down by 7%. None of this was because of high fuel duty. The last Government only managed to push through half of its planned fuel tax increases: as a result duty costs less in real terms than it did ten years ago.
In 2007 the underlying price of oil almost doubled in the space of a few months. That helped to pop the US subprime mortgage bubble, which in turn led to the great financial meltdown and . well, the rest is history.
Prices for road fuels will stay uncomfortably high from now on - high enough to make the Government's official forecast of 40% growth in traffic over the next 20 years look nonsensical. For the Government now to add to the burden on businesses and drivers by needlessly continuing to raise fuel duty would be just as senseless.
Let's hope that George Osborne will show that he understands what's at stake when he presents the Budget next week. One of his predecessors liked to sip Scotch during the Budget speech but I believe that Mr Osborne prefers water. He might reflect on the fact that, like traffic levels, sales of bottled water in the UK have fallen by 4% since 2007.
Just one of the things that people are cutting back on in order to meet the rising cost of petrol and diesel.
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