Vincent Cable: Brown must not relent on energy taxation

The alternative to rationing is a strong price signal – we had better get used to it

Share
Related Topics

This year has seen failing banks, a 10p tax revolt, a bursting house price bubble, anger over high food, gas and electricity prices and, now, an oil shock. After over a decade of growth and rising expectations, a sharp squeeze on living standards is making people very cross. The Government's offers of palliatives have, so far, merely added contempt for its weakness to disillusion over its performance. Its PR skills rival those of Marie Antoinette during the Paris food riots – witness the suggestion that today's worries over oil product prices might be eased by more nuclear power in 20 years time. It must not now make a bad situation worse by panicking over energy taxation.

The oil price shock is global; but the distributional effects are felt nationally. Unlike the US, Germany, China and India, Britain is largely self-sufficient in oil. We are not making large transfers to overseas oil producers. That is why Gordon Brown's appeals to Opec are so ludicrous. The national argument is about how to share out the "economic rent" from North Sea oil and how to ease the pain from a shift in relative prices.

Government tax revenues from North Sea oil could rise this year from £10bn (based on oil prices of $84 a barrel) to £16bn (at $128): a windfall from extra tax on oil company profits and petroleum revenue tax.

Some people seem to believe oil revenues exist in a financial silo and that any windfall can just be "given back to the motorist". It isn't that simple, however. The overall government budget is deteriorating badly. The current economic slowdown is affecting income and corporation tax. The seizing up of the housing market has badly hit stamp duty. The Institute of Directors predicts a £20bn tax shortfall this year over and above the planned £43bn government borrowing and the unplanned £2.3m concession to 10p taxpayers. Delaying the planned 2p rise in fuel duty for another six months would cost a further £550m: money the Government does not have and would have to borrow.

Then there is the environmental dimension. Lord Turner, chair of the Government's climate change committee, has reminded it (and us) higher energy prices are a "legitimate" way to cut greenhouse gas emissions. In fact, fuel tax in real terms has fallen (by about a sixth) since the 2000 fuel protests. The overall affordability of motoring – and road freight – relative to public transport has consistently improved, despite fuel taxes. It is alarming to see how quickly and easily environmental concerns are being swept aside. Yet, if oil use is to be curtailed the alternative to crude and authoritarian rationing is a strong price signal. We had better get used to it.

There are, of course, special problems in rural areas which lack transport alternatives. Differential duties favouring remote areas are one option. Last week, I visited Shetland, where fuel prices are the highest in Britain. People are worried and annoyed (particularly with the fuel distributors who seem to be exploiting a local monopoly). But, then, I noticed lines of cars at major junctions in the countryside. Motorists drive in from farms and remote hamlets, then share car journeys into the major town. Necessity is the mother of public-spirited invention. How then, should the Government respond to the clamour for tax cuts on motoring? Demands for unfunded duty cuts are simply demagogic. An alternative is to vary duties with the oil price (up and down) to create more price stability. Unfortunately, with crude prices fluctuating by $10 a barrel in a week, a variable tax could be an administrative nightmare.

Then there is taxation of vehicles rather than fuel. The Government proposes applying environmentally graduated excise duty retrospectively on older vehicles, having earlier promised not to. Sneaky changes like this bring environmental taxes into disrepute. It would be better to have much bigger tax incentives for new vehicles, rewarding fuel efficient cars and penalising gas guzzlers. Road hauliers have a reasonable grievance but not the one they are currently protesting about. They are right to be annoyed that continental lorries fill up before entry and do not pay higher fuel duty on British roads. The Government failed to deliver a promised road user pricing scheme.

These issues require a careful, planned response. The Government must not panic. It should wait. This is not Armageddon. Markets will work, given time, as global oil demand moderates and supply responds. In the short run the oil price could rise further or fall back sharply. None of us can predict oil prices and those who claim to are either fools or charlatans. What the Government must not do is further compromise its deteriorating fiscal position or abandon environmental imperatives.

The writer is deputy leader of the Liberal Democrats and their Treasury spokesman

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Associate Recruitment Consultant - IT

£20000 - £25000 per annum + OTE £40,000: SThree: Computer Futures has been est...

IT Technician (1st/2nd line support) - Leatherhead, Surrey

£23000 - £25000 per annum: Ashdown Group: IT Technician (1st/2nd line support)...

Business Analyst

£300 - £350 per day: Orgtel: Job Title: Business Analyst Rate: £300 - £350 per...

C# .NET Developer

£290 - £291 per day + competitive: Progressive Recruitment: Manchester C#.NET ...

Day In a Page

Read Next
The Independent journalist James Moore pictured outside Mile End underground station in east London  

The true cost of being disabled goes far beyond just the physical

James Moore
 

Palestinian natural resources lie beneath this terrible conflict

Shawan Jabarin
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform