Very Dodgy Logic Here

Very dodgy indeed.

But Angela Eagle, a junior Treasury minister, said: "The Government rejects the notion that there is a windfall, as any increase in VAT receipts from the retail fuel sector is not by design."

Edmund King, the president of the AA, accused the Government of being "disingenuous".

He said: "If you take into account what they are getting in Petroleum Revenue Tax from the North Sea, the Treasury has enjoyed a £4billion windfall."

There\’s three different taxes here. First, I buy the VAT argument from the government side. It\’s a consumption tax levied upon, guess what, consumption, and if relative prices in the economy change that\’s no reason to go mucking about with the rates of said consumption tax.

Second, there\’s PRT, a tax on the crude pumped up. This is a royalty in fact: oil companies are entitled to the value added they provide by exploration, pumping, drilling etc, but not to hte basic value of the oil itself: that\’s a natural resource endowment and should be taxed, in the same way as a land value tax. It\’s one of the few parts of the economy where we do in fact tax in this correct manner. Further, the rate of that tax makes no difference at all to what motorists pay at the pump. The presence or abscence of the tax makes no difference to the global price of oil and thus not to the price charged the motorist.

If anything, it\’s a transfer from shareholders to government: and rightly so.

Finally, there\’s fuel duty itself. There the govt\’s case is a great deal weaker.

However, I\’d like to ask a question. The fuel duty escalator: brought in by the Tories (?) the intention was to increase the relative price of petrol so as to take account of the climate change effects, wasn\’t it?

OK, so how much has the fuel duty escalator increased the price of a litre of petrol so far? Anyone know?

The CO2 costs of petrol would be fully covered by a 10 p tax per litre. Has the escalator already managed that?

4 comments on “Very Dodgy Logic Here

  1. “The fuel duty escalator: brought in by the Tories (?)”


    “the intention was to increase the relative price of petrol so as to take account of the climate change effects, wasn’t it?”

    No. The /excuse/ was “the environment. The intention was to raise cash.

  2. Didn’t Labour abolish the escalator after the White Van Man protests in 2000, with subsequent fuel tax rises being in line with inflation only?

  3. Eagle says an increase in income is not a windfall if it is not expected/intended – at least, I think that is what she said. Surely that is the definition of a windfall?

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