This is actually news:
Supermarkets and petrol stations could cut the price of petrol to £1 a litre in an early Christmas present for motorists.
The American press is similarly celebrating gasoline falling to $1.50 and under.
And, near enough, $1.50 and £1 are the same price.
The difference is that the US price is per one of their funny gallons (around 3.5 litres) and ours is for 1 litre. Both oil and petrol are global markets, the price set in said global market. The difference is of course purely taxation.
Even though we could make a decent argument that US gasoline is undertaxed (by perhaps 50 cents a funny gallon, if we believe Lord Stern), it’s very difficult not to also argue that UK petrol is overtaxed (by some 15 p a litre, if we believe Lord Stern again).
But then, who now believes Lord Stern? He epitomises the old saying, “Anything that can go wrong, Will.”
It isn’t difficult at all to argue that petrol is not overtaxed. The tax on petrol is there for many reasons to do with the costs of motoring, road maintenance, policing and courts, medical care, congestion,Co2 and particulate pollution AND to raise revenue for general taxation.
PS just because it is a global market doesn’t mean you pay the same price anywhere in the world. You have to get the right type of fuel to the right location. I dare say the pretax price of petrol is a tad higher in Antarctica than in Houston.
@ Magnusw he tax on petrol is there for many reasons to do with the costs of motoring, road maintenance, policing and courts, medical care, congestion,Co2 and particulate pollution AND to raise revenue for general taxation.
Seriously???
So the costs of all those things are significantly lower in the US…?
No, we can do better than this. Stern said should be $80 per tonne CO2 carbon tax. OK, that’s 11 p per litre petrol. Ken Clarke brought in the fuel duty escalator to, in his words, “meet our Rio commitments”. Ie, a carbon tax. The fde has increased tax by some 25p a litre.
Petrol is overtaxed in the UK by the Stern standards.
I understood lowering the price of petrol would increase its consumption and stuff up the balance of payments. Did I miss a memo?
Petrol tax in the UK has little to do with carbon dioxide and quite lot to do with congestion.
And it’s as high as it is because demand is not in practice very elastic.
It was convenient for Ken Clarke, and Norman Lamont before him, to talk about carbon dioxide when increasing petrol duties. But not honest.
Petrol tax is just plucking the maximum number of feathers with a minimum of hissing. As motoring costs have fallen (cheaper, more reliable, and more efficient cars) the government has made up the difference by raising petrol tax. As a result people didn’t feel poorer. Quite clever really.
By the same principle, we could have had a whopping tax on the internet; and people would have gladly paid up. If 97% of the value of Google is the increased convenience to the user then there’s ample scope for heavy taxation. Charge every household a tenner a month and you’ve raised £3bn a year. Too late now though – that horse has firmly bolted.
Petrol has already fallen from £1.35 per litre to £1.05 per litre in the last few years. Has there been a 25% increase in congestion or any proportional increase in traffic levels. I suspect the congestion thing is one of those things we believe true when the facts do no support.
“Petrol is overtaxed in the UK by the Stern standards.”
And why a “Carbon Tax” as a solution to any gerbil worming problem is complete & utter bollocks.
Coz politicians.
Petrol tax in the UK has little to do with carbon dioxide and quite lot to do with congestion.
And it’s as high as it is because demand is not in practice very elastic.
Demand is inelastic, so price has little effect; therefore high taxes on petrol have little effect on congestion. So it’s high in order to have very little effect?
CG: Has there been a 25% increase in congestion or any proportional increase in traffic levels?
No. You are saying that elasticity of demand is smaller than (minus) one. And you’re right.
TJ: So it’s high in order to have very little effect?
What would be the effect on congestion of decreasing petrol tax to US levels? I suspect not small.
__
I think I’d vote for reducing petrol taxes to Stern levels, and introducing congestion charging based on number-plate recognition instead. But that would have the downside that the state could know even more about your movements than it already does.
Amazingly, that’s what the ASI suggests….
BiC – I didn’t say that, my response was a little poorly worded insofar as all the tax goes in to general taxation pot but it can be argued that to some extent the level of the taxation goes some way to covering the social costs of motoring.
That the US government might use other taxes to cover the social costs of motoring is irrelevant.
Timmy – We go over this each time you bring this up. Politicians are liars that one of them misled people in to thinking there was any link between the money that is collected for general taxation and CO2 emissions may be a lie, but it doesn’t mean fuel is overtaxed.
A tax on fuel may be the wrong tax, but it is a pretty good proxy.
The only way motorist can be considered to be overtaxed is if the total revenue from all motoring taxes is greater than the total social costs of motoring, at the moment that is not the case. Motoring taxes are off the top of my head ~£38bn, whereas the social costs are variously estimated between £50-100bn. The main reason for the enormous variance is how congestion is accounted for in the different studies.
Anyone who takes Stern and his figures in anyway seriously – even seriously enough to argue with – is wasting their time.
The figures Stern comes up with are a particular kind of cost/benifit calculation. Anything he dislikes is a cost, (to be exaggerated massively), and anything he likes is a benifit, (to be exaggerated massively).
Thus the numbers he produces are nonsense and their only purpose is to give politicians cover to tax air.
SJW
“I think I’d vote for reducing petrol taxes to Stern levels … But that would have the downside that the state could know even more about your movements than it already does.”
But you would be happy to vote for it anyway?
magnusw
£50-100 billion of social costs?
~ 5% of GDP – a “social” cost of motoring..!?
whereas the social costs are variously estimated between £50-100bn.
And how are the social benefits of motoring quantified?
What magnusw said.
Every time this subject crops up, we get the straw man that fuel duty only exists to price for CO2. The fact that it predates widespread concern about CO2 should be evidence enough to the contrary.
And how are the social benefits of motoring quantified?
Precisely… How many trains and buses would we have to build to replace cars…?
…what Tim Newman said.
There are social benefits to road building and to motorized transport – not least, that I can eat food that is produced more than a day’s walk from where I live (or, more to the point, I and another hundred thousand people or so can live more than a day’s walk from a -very large- farm). How are the positive externalities of human activities factored into this “social cost” calculation?
It seems to me (and I am not being disingenuous – this is far from my field) that they are not. It is easier to identify and cost the negative externalities (pollution – the real stuff, not Carbon Dioxide, like NOx, SO2, particulates, etc; loss of crop land, traffic deaths, and so on) than to count up the benefits of something that largely enables our entire civilization (along with other manifestations of cheapish energy, like reliable electricity). It seems (again) to me that these calculations are often poorly done. The fact that they suit a particular political or policy preference is possibly just coincidental.
The fact that it predates widespread concern about CO2 should be evidence enough to the contrary.
Damned poor evidence. I would submit that the interest in taxing fuel is evidence only that those who like to tax can recognize a vital commodity with very low elasticity, which makes it a very good target for taxation. All the concerns for “pricing in” the external costs of fuel use, or levying Pigou taxes are a cover story for the desire to expand a reliable tax base.
dcardno, you are offering an argument in support of my point, while implying you are refuting it. Bit weird.
I believe governments have the right to tax to fund their legitimate functions. I look for two attributes to determine if a tax is legit:
1. It is levied in equal amounts or equal rates;
2. It is general in nature, affecting most people (i.e., it doesn’t target certain activities or certain groups of people, attempting to manipulate behavior rather than raise revenue)
Therefore, I consider petrol tax legit. While the rates seem high in Europe, it is still legit. It is as good a way as any for governments to raise their necessary revenue.
It is, however, highly regressive. It falls more heavily on the rural poor than the city rich. Is paid more by people with older fuel inefficient cars & less by people with newer frugal ones. It penalises those who drive to work in low page jobs to subsidise those who commute to work in high paid.
Sorry, bis. Taxation isn’t nice.
I grew up in the colonies and have a colonial education. We were taught that in an Imperial gallon there are 8 pints, 4 quarts and 6 bottles. Bottles? Yes, standard wine bottles. Before the days of packaged and bottled milk we had to take our own containers to the diary and there they used long laddles to fill you containers with milk. So, six wine bottles equalled a gallon.
The American gallon contains 5 bottles (as near as dammit). The legend is that after the war of independence the Americans metricated, and therefore there are 5 bottles in a US gallon.
So for a rule of thumb, divide an Imperial gallon by 6 and then multiply by 5. to get US gallons. Conversely divide a US gallon by five and multiply with 6 to get imperial gallons. For everyday calculations this is a good enough approximation.
I don’t think TheJollyGreenMan’s quite right, but close.
The current imperial gallon is really more or less the old ale gallon, and the current US gallon is really the old wine gallon (aka Queen Anne’s gallon).
For those sniffing at Americans as Johnny-come-lately, I’d note that the wine gallon is *older* than the imperial gallon.
As a dedicated wine bibber, I’ll be happy to leave the ale and its gallon to the Brits if I can have the wine.