Yesterday I wrote a piece for Conservative Home on fuel duty, reproduced below:
The days and weeks after an election win are critical for any Government. Five weeks in to the first Conservative Government in 18 years, the narrative looks dominated by Europe.
That is a narrative that can only last two years at most, but as George Osborne prepares to deliver his first Conservative-only budget on July 8, there is a once in a parliament opportunity to be bold and set a clear direction of travel which can shape the economic narrative over the whole parliament.
The Chancellor should act now to shift the burden of tax from income to consumption, setting a course for a radical reshaping on the tax debate that embeds fairness, efficiency and environmentalism at the core of our economic plans.
In his Budget of 2011, the Chancellor announced a long overdue plan to scrap the fuel duty escalator introduced by Gordon Brown and cut fuel duty in order to help hard pressed families. Inflation was running at close to five per cent and it was the right time to act.
Huge credit must go to the brilliant campaigning by Robert Halfon in putting an end to the escalator, and ensuring the Conservative Party in government acts in the interest of hard-working Britons.
In place of the escalator – which saw fuel duty rise by a penny a litre above inflation – the Chancellor introduced higher charges for oil companies who were benefiting from bumper prices: the so called fuel duty stabiliser.
Announcing the change in his Budget speech, George Osborne said:
“We can introduce a Fair Fuel Stabiliser. From tomorrow the supplementary charge levied on oil and gas production will increase from 20% to 32%… That will raise £2 billion additional revenue. But… if the oil price sustains a fall below $75, and we will consult on the precise figure, we will reintroduce the escalator and reduce the new oil tax in proportion.”
This was not a new idea. In fact it was a proposal he first made in 2008 as Shadow Chancellor, when as part of his justification he highlighted the need to stabilise the price of carbon and encourage investment in new low-carbon technologies: “In the case of fuel duty this works mainly by encouraging a long term shift towards lower emission vehicles and alternative methods of transport that do less damage to the environment.”
But what has happened? An unforeseen fall in the global oil price led to changes in the North Sea tax regime to support investment in new fields, but now oil has traded below $70 a barrel since September and there has been no increase in Fuel Duty. It looks like the fair duty stabiliser has been abandoned.
With the UK expected to be the fastest growing economy in the G7 for the second year running, employment at record levels and inflation tipping into negative territory, there is an opportunity now to be bold in championing workers by cutting the jobs tax.
So in his first all-Conservative Budget, the Chancellor should consider a hefty rise in Fuel Duty to fund a tax cut for working people.
A one pence per litre hike in petrol and diesel duty raises £250m a year. For every penny hike in Fuel Duty you could raise the point at which we start to pay National Insurance by £104.
A 24 pence rise would allow the NI threshold to rise to match the Personal Allowance, taking around three million of the lowest paid out of this tax.
To ensure such a rise does not penalise communities who have little choice but to depend on their car, an adjustment can be made to the Rural Duty Relief Scheme.
Not only does such a change in taxation demonstrate our commitment to ensuring work always pays, taking the lowest paid out of the Jobs Tax meets our manifesto pledge to prioritise the lowest paid for tax cuts.
It is also delivers the Conservative plan, championed by Cameron in opposition, to shift the burden of tax from income to consumption. Doing so is greener and fairer, and more effective in raising tax and tackling avoidance.
It is also electorally essential. More than a million votes going to the Green Party in England and Wales at the General Election – 171,000 of those in London where we will need second preference votes to win in May 2016.
Now is the time to step up to the challenge and wrestle the environmental mantle back from the left by delivering ‘green’ policies in an economically Conservative manner.
With petrol prices down from their peak at over 140 pence a litre and currently averaging 116 pence per litre, the Chancellor could put fuel price back to where they were when he cancelled future rises by abolishing the escalator and deliver a £300 income tax cut to workers across Britain.
Post-election, riding high in the polls, this is the time to make bold decisions.