Source: BBC Radio 4: Today Programme
URL: N/A
Date: 07/03/2011
Event: Discussion on the Today Programme about rising fuel prices
People:
Evan Davis: John Whiting, it is pretty remarkable, isn't it, I mean, that there hasn't been a revolution in the streets, at the sort of prices at this level. Just tell us how important the tax is, um, towards the Chancellor's plans to get the deficit down.
John Whiting: We do raise quite a lot of money from fuel duty, more than many countries. The fuel duty gets £25 billion a year in. To put that into context, that's about 5% of our total revenues. You've got VAT on top of that, because of course we charge VAT not only on the fuel but on the duty as well. That'll give him another 8 or 9 billion. Slight irony is before current events putting the price up, the fuel duty was actually static, because of course we were driving more fuel-efficient cars, and some in the Treasury were beginning to get concerned...
Evan Davis: ... that we'd run out of money. So the 1p on petrol - if the Chancellor foregoes that in the Budget, the real increase in the tax at 1p over and above inflation - that costs him what?
John Whiting: That costs him about - somewhere in the order of 400 - 420 *million* pounds. To put that into context, that's about a tenth of a penny on VAT, and of course, people are still trying to cope with the idea of two and a half pence on VAT.
Evan Davis: Well, Donald Hirsch - who do you think suffers most from this? On the one hand, one tends to think the poor probably aren't using cars, and driving as big cars as everyone else, so maybe this is not particularly impacting the poor, but does it affect the poor?
Donald Hirsch: Well, it's certainly true that the people who lose the most from this are people who are better off, because only about half of people on - the 20% of people on the lowest incomes do drive cars. Um, and you could argue that if you really want to help the poorer people with energy costs, you should be going for things like heating. Heating oil, gas, electricity - because that's used by everybody. On the other hand, if you live in a rural area, particularly, and you really have to drive a car, it could get to the point where it's really difficult even to take a job, because petrol's so expensive. And our research shows that already, people in rural areas who are running a car, have to spend about a fifth of all of their essential outgoings just on doing so.
Evan Davis: That's extraordinary, isn't it. Of course, the other distributional issue, Donald Hirsch, is that the poor might be less able to switch the car towards something that is tax-efficient. I mean, if there is one upside to high fuel prices, this is it concentrates everybody's minds on economising on fuel, but it's actually quite difficult if you've got an old car, perhaps one that's burning quite a lot of fuel. It's quite hard if you don't have the money to, sort of, buy a better, more fuel-efficient car.
Donald Hirsch: Yes, and I do think that with petrol prices at this stage, you have to think about the possibility of making petrol cheaper, or not so much more expensive, but in the longer term, we should be helping people on lower incomes in different ways, for example, to make that kind of switch. And for people who live in more remote areas, we need to think about other solutions like improving public transport, or at least trying to make sure that jobs and services are closer to them. These are longer-term things which we have to help people with, but in the meantime, one has to accept that things will get pretty difficult if you let fuel prices keep on rising.
Evan Davis: I mean, John Whiting, there's been a lot of talk about potential fuel tax, fuel price stabiliser, where you lower the tax when the price is high, the difficulty is that you don't know at the moment whether the price is actually low, compared with what it's going to be...
John Whiting: ... going to be, in due course...
Evan Davis: ... in due course. Do you think anything is going to come of all of that talk?
John Whiting: It's a difficult one. I can well imagine him postponing this 1p duty rise that's in the pipeline, as it were. But other thoughts that people talk about, for example reducing the rate of VAT on fuel, that's tricky. We've got a standard rate, that's what we're supposed to stick to. On the other hand, at the end of the day the Government does have a choice as to how it raises taxes. You know, people talk about - why not put up income tax instead of the fuel duty, but it all comes down to choices. None of them are easy or palatable.
Evan Davis: Yeah, and Donald Hirsch, that is an important point to finish on - if you weren't raising the tax on petrol or diesel, you'd be raising it on something else, if you assume the Government's going to stick by its plans, so someone's got to pay at somewhere, haven't they?
Donald Hirsch: Yep, and if you have a bit of money, why not cut the price of heating oil in rural areas - that's going to help people on lower incomes more directly, than if you have to spread it between everybody who's using petrol.