When will Osborne U-turn on Fuel Duty?

When will Osborne U-turn on Fuel Duty?

Is the planned rise asking for trouble?

The PR has unravelled on Osborne’s Budget for much the same reason as it unravelled frequently on those of Gordon Brown: hiding bad news means your opponents get first shot at making the argument on the issue and that then sets the terms of debate. Had he been upfront about the freezing of pensioner tax allowances and set it in the context of the already generous amounts and the freebies and perks that pensioners already get, he might have stood a chance. He didn’t.

Even so, the story is likely to be at most a one week wonder because there’s not really anywhere for it to go. One reason that this government, like the last one, has been so keen on fiscal drag (in this case, both cutting real-terms expenditure and increasing tax take), is that it takes effect gradually and so is less likely to spark off protests. Few go to the barricade because something has stayed the same.

By contrast, visible changes in taxation or charges do spark disquiet and unrest, and few changes are more visible than fuel duty. That’s why Osborne’s decision to stick with the planned 3.6p per litre increase in August seems destined to end in tears if it is carried through.

The timing – right in the middle of the Olympics – may prevent an immediate reaction but there’s a month of Silly Season straight after the Olympic flame is extinguished for public and media alike. It was the Fuel Protests of 2000 that produced the first crack in the Blair government’s popularity. They too started in August before building to a head in September and followed a combination of Fuel Duty increases and a trebling in the rise in the price of crude oil from $10 a barrel to $30 over the previous eighteen months.

Considering the sustained increase in petrol prices over the last three years, it’s a little surprising that it hasn’t become an issue already. Obviously, a large part of the increase is down to world factors but equally clearly, the increase rise in Fuel Duty isn’t and just looks to be adding pain unnecessarily, especially given its stated commitment to moderating fluctuations at the pumps, not exacerbating them.

It’s worth looking at just how big the rise has been. In early 2009, after the credit crunch left spare international capacity in production and refining, crude oil dropped to $34 a barrel and petrol in the UK was only 86p per litre. Oil now trades at more than three times what it did and petrol is retailing at an average of £1.40 per litre. That’s a huge and very noticeable difference.

The so-called Granny Tax row will subside. Tax thresholds being subject to fiscal drag is very much a stealth tax. To the extent that it does impact, it’s inflation that’s usually the cited concern. By contrast, the Fuel Duty rise has all the potential to become a very serious crisis, as that of 2000 was. Osborne is playing with fire retaining it in his plans – and fire and petrol are best kept apart.

David Herdson

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