Tuesday 15 March 2022

Why does the UK Government allow the petrol catastrophe?

After some stabilisation in the Ukraine war and also a realisation that much of Europe is not about to ban Russian oil imports, Brent Crude prices have dropped from $139 a barrel back down to around $110. 

$110 oil is still very expensive and will mean UK retail prices of over £1.60 for the foreseeable future. 

This is about 30% higher than pre-war and of course is broadly linked to the 30% increase in oil price. 

However, as we all know Retail fuel prices are a huge chunk of tax. Currently that is set at 57.6p per litre, plus 20% VAT on the remainder. 

If we take petrol at £1.60, this means you have 82.8p per litre of tax - just over 50%. This is 17p odd more in tax than when the fuel price was £1.30. 

Given the Petrol Retailers Association says we buy around 38 billion litres of Petrol and Diesel combined, that 17p is about £6.5 billion more in revenue per year, or nearly £600m per month in tax revenue for the Government. Diesel  prices are up to 10p higher, so this is an underestimate in all likelihood. 

This increase is very inflationary  in the short term, because the price goes up for transport, end prices for goods also go up substantially. Normally, you would see tax rises as anti-inflationary as they reduce demand, but for goods whose purchase are necessary inputs, this argument does not hold so much water. Less travel and less deliveries of goods will reduce economic activity in the long-term causing a recession but still cause a short-term bump in inflation. Great. 

The Government could easily reduce fuel duty by 5p in its Spring statement next week and help the country through its fuel price crisis. It cannot do this so easily on residential gas, which will mean home bills will remain high. All the more reason to help out with energy costs somewhere for consumers.

Reducing by 5p the fuel duty still means the Government revenues will be going up during the year from what was expected at the last budget, where prices were £1.42 on average which is well below where they will be in terms of 2022 predictions. Some analysts say £2 diesel is only a couple of weeks away as so much (33%) of our retail diesel was imported from Russia. 

Of course, the Government is less keen on telling everyone that due to the rise it must keep raising Vehicle Excise Duty. Currently electric vehicles are 33% of all new cars sold and with Fuel costs at this price, this is only going to go up. (Although, with home energy costs rising 200%+, the differential benefit in cost terms to electric is still reducing, but overall worth it). 

Longer term, all this means we must move to road pricing or back to higher taxes on car ownership and less on the usage. Hard times for an eco-loon Government intent on pushing everyone electric.

But now is the time to commission the long-term review whilst alleviating the short-term issues - a free popularity boost to the battered Government too. 

29 comments:

dearieme said...

We need a Trump-a-like to sweep into office declaring that all the Green stuff is eco-fascist bullshit.

Alas in this spavined land few would vote for him.

Jan said...

But but this is the exact opposite to what the government wants. They need all the tax they can get to pay for all the increases in benefits and salaries for all the government employees. There'll be even more to fork out than before because of all the people we are inviting to the UK. Plus there's the big hole in the finances to pay for the plandemic.

What's more it goes against all the greenery as they want us all out of our cars and onto public transport. I can see the opposite happening eg petrol rationing and speed limits on motorways........back to the 70s but on steroids.

What's a bit of inflation when it will help inflate away the debt.

DJK said...

They certainly need tax revenue from somewhere. Defence is the next department to come along with a begging bowl. NHS will probably not be far behind ("...planned spending increase less than inflation..."). The useless test 'n trace has to be paid for, not to mention all the fradulent furlough spending. Then as Jan says, we have to pay to accommodate the boat people coming across the channel. And I'm fairly sure that Boris will want to make an extremely generous gesture when it comes time to reconstruct and/or rearming Ukraine. On top of that, lots of special interest bungs are needed to soften the blow of rising prices. The list of things to spend money on is never ending.

BTW, saying we should tax roads instead of fuel is just special pleading that will help some people at the expense of others.

Anonymous said...

BTW, saying we should tax roads instead of fuel is just special pleading that will help some people at the expense of others

Not necessarily. EV owners pay no fuel tax, as diesel and unleaded drivers do and pay reduced road tax. Part of the bung to get everyone to switch.

If not road pricing, then what?

DJK said...

OK, point taken about electric cars. They will have to be taxed in some way. Maybe the charging points (home and public) can be taxed? Still, finding a new way to tax electric cars doesn't mean that petrol/diesel is likely to get any cheaper.

Anonymous said...

"Why does the UK Government allow the petrol catastrophe?"

Because we need to impoverish Brits and improve the living standards of China and India by rejecting oil from Russia, who have been bombing Ukraine for three weeks, and importing oil from Saudi Arabia, who have been bombing Yemen for seven years now.

Simples, as meerkat Aleksandr Orlov would say if he hadn't been purged because of his race.

https://www.unicef.org.uk/press-releases/shameful-milestone-in-yemen-as-10000-children-killed-or-maimed-since-fighting-began-geneva-palais-briefing-note-on-the-situation-of-children-in-yemen/

Anonymous said...

"back to the 70s but on steroids"

And with the major difference that in the 70s a male on median income could afford to buy a house on one salary, with a mortgage of 3.5 x that salary

jim said...

Now why would any sane chancellor give money away except when votes need to be bought. There are far too many other good causes - all those Tuscan villas needing a paint job, all those Jemimas needing a pony and Georginas needing a new Range Rover. Too many worthy causes closer to home. I don't see a reduction in fuel tax - or not more than say 1 or 2p at the most.

We still see the 'this is Green Crap' schtick. Green may be inconvenient and I can see the case for putting it off - indeed the whole world is going to put 'Green' off right up to the time we start starving. So we might as well join them, but don't kid ourselves that 'Green' is crap. Nature will certainly bite us on the bum but that will be a PRQ.

This Ukraine thing is most inconvenient, had Mr Putin taken over quickly we could all have gone 'ho hum, too bad about freedom, but at least we got the gas'. Now it is all a bit embarrassing, Mr Putin looks like dragging it out and making a very public mess. Difficult for him to climb down now and difficult for us to go back to 'business as usual'. At least not without a loss of face - but that is what politicians are paid for. Perhaps Mr Putin is deliberately taking it slowly, just to stretch out the agony and wave the finger, just because he can.

Don Cox said...

The electricity used to charge up an electric car battery is taxed.

5% VAT, I think. And presumably replacement batteries are taxed at 25%.

Don

Anonymous said...

"had Mr Putin taken over quickly we could all have gone 'ho hum, too bad about freedom, but at least we got the gas'. Now it is all a bit embarrassing, Mr Putin looks like dragging it out"

We won't (correctly IMHO, we have no vital interest there - or in the Baltic states either, NATO though they be) fight against Russia.

But we'll train Ukrainian soldiers for 7 years and give them our latest kit (those NLAWs will just fly off the shelves now) - so the slaughter will drag out, feelings harden on all sides, and Russia will still win.

Another great triumph for US foreign policy - Russia and Germany's economic cooperation severed at a stroke. Pity about the dead Russians and Ukrainians.

Anonymous said...

You can't tell the truth of anything in this war, so caveat emptor, but I would not be surprised if Russian feeling towards Brits and Yanks is not the best atm.

https://pbs.twimg.com/media/FN4WE3QWUAUxnZy?format=jpg&name=large

Anonymous said...

"Reporter asks (Jen Psaki, Biden's Press Sec) if it's a fair assessment to say the U.S. is "pushing these guys (Ukraine) to commit suicide" knowing that Russia will eventually capture Ukraine's main cities."

https://twitter.com/camilapress/status/1503465841169506309

Anonymous said...

Diesel 172 btw, if you can find a supermarket that has some.

Anonymous said...

Clearly our esteemed government is raking in huge amounts of VAT at the present inflated prices for fuel. As we can now set our own VAT rates, perhaps Rishi could halve VAT to 10 per cent without loss of tax take.

Yet Another Chris

Anonymous said...

Guardian - "Boris Johnson has compared Vladimir Putin to a drug dealer who managed to hook western nations on Russian supplies of oil and gas, ahead of a trip to the Middle East in an attempt to diversify the sources of Britain’s energy imports."

Who was it who said in wartime (I think it was Mussolini) "Here is is another man with whom I cannot get angry, because I despise him".

And to think he's still better than Starmer!

Seelby the Berk said...

@anonymous 4:41pm

What did you want as a reply from Psaki ?

The elephant in the room are nuclear weapons
How do you respond if the aggressor has more nuclear weapons than you

So yes Ukraine will likely be razed to the ground by conventional war.

Plant vegetables you may be happy you did

Elby the Beserk said...

DJK said...
They certainly need tax revenue from somewhere. Defence is the next department to come along with a begging bowl. NHS will probably not be far behind ("...planned spending increase less than inflation...").
==============================

With the NHS employing Diversity pen pushers like there's no tomorrow, LESS money is what they need. Underfunded my arse

https://order-order.com/2021/12/03/nhss-latest-diversity-equality-hiring-spree/

Not a penny more.

visc said...

Why worry about the price of oil in dollars, looks like despite all the Boris bullshit the Saudi's are fumbling towards pricing in Yuan also.

https://www.wsj.com/articles/saudi-arabia-invites-chinas-xi-to-visit-kingdom-amid-strained-u-s-relations-11647284211

If so expect to see every more histrionic crap from UK Gov. impotent pawns they are.

Bill Quango MP said...

How will the Saudis cope when they devalue their billions of US$ Reserves and assets and stocks by accepting payment in Yuan?


How will they cope when the Yuan decides to devalue every other year to remain ultra competitive vs the west?

DJK said...

BQ says: "How will the Saudis cope..."

But how will they cope if their USD assets get frozen or seized by the USG? There are now clear precedents. China may actually be a safer place for them to keep their money.

See also the Bretton Woods III thesis by Zoltan Pozsar, or recent writings by Michael Hudson. Sanctions blowback still has a long way to go.

DJK said...

Quote from Pozsar:

"When this crisis (and war) is over, the U.S. dollar should be much weaker and, on the flipside, the renminbi much stronger, backed by a basket of commodities."

The Saudis are ahead of the curve in wanting payment in Yuan/Renminbi. They are having doubts about the promises inherent in the USD.

Alan Clark said that "as safe as the Bank of England" was once a phrase with real mining. Sterling was backed by gold and the power of the Royal Navy. Until suddenly it wasn't. Britain came off the gold standard and the navy mutinied at Invergordon. Something similar is in the wind with the US.

Frank said...

"However, as we all know Retail fuel prices are a huge chunk of tax. Currently that is set at 57.6p per litre, plus 20% VAT on the remainder."

As I understand it, VAT is charged on the whole amount, including the duty, not just on "the remainder".

If we take petrol at £1.60, this means you have 82.8p per litre of tax - just over 50%. This is 17p odd more in tax than when the fuel price was £1.30."

With VAt at 20%, that means one sixth of the price is VAT, one sixth of the extra 30p is 5p, not 17p.

dearieme said...

If we want people to economise on petrol use we should push the tax up.

Ditto gas and electricity.

The burden on the poor could be decreased by reducing the tax on burgers, crips, and lager.

Matt said...

@ dearieme

I assume that is satire.

However it's what this bunch of cranks are suggesting - https://www.gbnews.uk/news/rapid-moves-to-cut-energy-demand-will-curb-bills-and-russian-gas-imports/248503

The long term plan is not to make the poor richer but to bring everyone down to living a subsistence lifestyle.

Sobers said...

"But how will they cope if their USD assets get frozen or seized by the USG? There are now clear precedents. China may actually be a safer place for them to keep their money."

Precisely. The West thinks its being very clever, stealing all the assets of Russian citizens. All its doing is telling everyone that your money/assets are not safe in the West, they can be expropriated on the whim of the ruling elite, and the courts will do nothing to stop it. And by doing so killing the golden goose - one of the reasons the West manages to live the high life despite not earning such a life is that it attracts wealth from around the world as a safe haven. Well the West isn't looking like a safe haven any more. More like a kleptocracy.

Similarly the Saudis may be about to decide that the next horse to hitch their wagon to is the spiffy Chinese one, not the broken down US nag thats too long in the tooth and just waiting for the knackers bullet. Yes they have lots of wealth tied up in the West, but I wouldn't be surprised to see lots of it slowly creep away over the next decade, for pastures further east.

The West is trying to use finance as a weapon, because they don't have the military to use actual weapons (we've spent it all on the NHS and welfare instead) and completely forgetting they are as dependent on foreigners to invest in their countries as they are dependent on foreigners to supply their energy. Bit of an own goal all round really.

IMO this is all going to show how weak and toothless the West really is. It can't feed itself or supply its own energy, and it consumes more than it produces. Boris going cap in hand to the Saudis just about sums it up. Please Mr Head Chopper, can we have some more oil? Pretty please? We'll say really nice things about you to everyone!

Anonymous said...

Have to agree with @Sobers about the Kleptocrats with one exception. It is not the state that is grabbing assets but Kleptocrats using the state as a front. Basically nominally western Kleptocrats hoping to gain eastern Kleptocrats assets at a knock down price when they come to market - which they will unless...

Putin has just put his group on notice to return to Russia or be seen as traitors. They won't so he will seize them and pass them onto other more pliant chosen ones. So anyone thinking of getting Russian assets are put on notice of not bothering.

Kleptocrats ensure Democracy looks alive even though it never existed.

James Higham said...

Wot Dearieme wrote.

E-K said...

It's all about tax.

The higher the prices the higher the tax.

We are a fully fledged socialist state with lying bastard Tories pretending it isn't.

Red Team Vs Blue Team, eh ?

E-K said...

Back to the '70s but without the family silver to sell.

In that era I recall being driven up the M1 London to Newcastle and seeing nothing but farming and industry all the way.

Now it's just housing estates and supermarket distribution centres.