When George Osborne's back is against the wall, he can normally be relied upon to pull a populist rabbit out of the hat. At the 2007 Conservative Party conference it was the promise of inheritance tax cuts.
In 2011 it seems likely to be action on fuel duty.
This would be a quick way for the Chancellor to secure some favourable headlines. The right-wing press has been lobbying for some time for the Chancellor to cancel April's scheduled rise in fuel duty. Congratulations from the media are just what Mr Osborne needs at a time when confidence in his entire economic strategy has been badly shaken by deeply disappointing growth figures for the fourth quarter of 2011. Yet the Chancellor should think hard before reaching into the hat and pulling out this particular bunny. Preventing the fuel duty rise would be economically unwise and also make a mockery of ministers' boasts that this will be "the greenest government ever".
This month's increase in VAT has boosted fuel prices. And the duty rise in April would push it up further. But prices at the pump are soaring not primarily because of tax increases but because of increases in the global oil price. That price is being driven by the rapid economic expansion in China, India and other oil-thirsty emerging economies.
The soaring market price shows that the demand for oil is outstripping supply. The sensible official response to the message being sent by the market is not to attempt to make fuel cheaper either by cancelling scheduled duty increases, or introducing the Coalition's mooted "fuel duty stabiliser". The sensible response is rather to use the high price of fuel as an extra incentive to move away from our economic reliance on fossil fuels.
The high price of fuel is certainly painful for many families. But the cost of motoring has fallen relative to other methods of transport over the past decade. That is the context in which the planned fuel duty increases must be seen. The Chancellor should be explaining to the public that the fuel price is sending us an important signal, rather than pretending that the Government can change the message.Reuse content