Johnny Porritt asks a question:

"Moreover, the less well-off are being disproportionately hammered, and the hikes in fuel taxes are far from fiscally neutral and never have been.

So, economically, socially, ethically, what are the implications of all that?

Your thoughts really welcome. As the Government’s official advisers on such matters, what do you think the SDC’s advice should be?"

I answer.

The advice should be that the Government should be consistent. Looking at the Stern Review we get a social cost for CO2 emissions of $85 per tonne. That is thus the correct amount by which emissions should be taxed to cover their social costs (and yes, of course, this does cover climate change issues).

That translates into roughly 11 p per litre of petrol. The fuel duty escalator has added some 23 p since 1993 to the price of a litre of petrol (without this autumn\’s proposed rise).

Thus, if the government accepts the conclusions of the Stern Review, which it says that it does, it should cut fuel duty by 12 p a litre.

Anyone arguing that it should raise it further is simply rejecting the scientific consensus, aren\’t they?


8 thoughts on “Elsewhere”

  1. Surely that only works if you view CO2 emissions as the only social cost associated with car use? If you’re also look at the localised environmental impact, and if you’re seeking to use fuel tax as a crude-but-inexpensive form of road pricing, the social costs could easily go above the Steyn numbers.

    [also, is your 23p rise real or nominal? if nominal, then it’s meaningless]

    Tim adds: There are indeed other social costs….and as tax is 50 p a litre or more, they’re already covered. And no nominal isn’t meaningless, actually, it understates the overpayment. For Stern’s figure is the more recent, thus inflation works the other way than it normally does.

  2. No problem with them totting up the social costs, as long as they also tot up the social benefits of car ownership 🙂

  3. “which fuel duty helps to pay for?”

    Helps? Don’t you mean pays for with plenty of change left over. Road Duty Tax was supposed to be the one paying for the roads.

  4. Sod climate change and VED car tax. Fuel duties should cover cost of building and maintaining roads, traffic cops and an appropriate amount towards A&E costs and, I would argue, subsidies for public transport, because one person on a bus or train is one less person on the road.

    And sod VAT on new cars as well – there should be a tax at so many £/ton on new cars to cover ultimate collection and disposal costs, and that’s that.

    But didn’t you (Tim) say yourself over on one of your other websites that as demand for fuel (and fags and alcohol, for that matter) is price-inelastic, there was no harm in taxing it to the hilt (in the context of hypothecation)?

    Tim adds: Tax where you can, spend where you must, yes, I’m against hypothecation. I’m not against fuel duty either….as you say, price inelastic, great thing to tax. I’m arguing against *this specific* justification for raising the tax upon it. I even agree with Pigou Taxes, it’s just that if you’re going to argue for them, you need to get the point that they give you and *optimal* level of taxation, one that might well be below the one you’re already charging.

    To repeat, I’m not arguing against taxing fuel, nor against any particular level of such taxation. Rather, against this justification for higher fuel taxes.

  5. It’s encouraging they’re trying to come up with reasons to tax, rather than just blithely saying, “bollocks to the lot of you” and raising them anyway.

  6. I’m with David Gillies.

    Back of the envelope, rounding: 11p/litre = 44p/1.25gallon = 37p / gallon = 75c/gal.

    Looks as if we’re in for a 55c/gal tax rise in the States just to cover CO(2).

    No wonder Krugman has seen the future (Old Europe, as you observed recently at AB), and it works.

    Tim adds: Sounds about right. There’s been a paper or two written calculating that the optimal gas tax would be about a $ a gallon higher than it is in the US and about half what it is in the UK.

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