The Oil Price and Fuel Duty

I love stats, so I'm going to begin with some figures from the AA. Unleaded petrol was introduced in 1988, and here is fuel duty as a % of the pump price for unleaded petrol over the years:

1988 61.10%
1989 59.25%
1990 58.65%
1991 61.55%
1992 65.55%
1993 67.13%
1994 69.64%
1995 73.17%
1996 76.10%
1997 77.14%
1998 81.48%
1999 81.14%
2000 75.00%
2001 75.33%
2002 75.26%
2003 75.26%
2004 73.18%
2005 68.89%

As you can see, the burden on the driver has been dropping under Labour, due to the Chancellor coming off the fuel-price escalator in 2000, and then keeping the duty frozen since 2003. He has clearly concluded that the petrol price is sufficiently high enough already to encourage conservation, and that the burden of fuel tax should fall in real terms as the oil price rises.

In this he has the support of industry (especially distribution) and also the general support of voters. UKPolling made the following comment:

A YouGov poll for the Economist partly reprised questions that were last asked in June 2005. Asked about some suggested policies to reduce the UK’s carbon emmissions, the figures suggested a very slight drop in the already low support for higher taxation of petrol in order to invest more in public transport (only 27% of people supported this, compared to 31% last year). 45% of people supported higher taxation of aviation, almost unchanged since last year. .

The oil price is now circa $76 per barrel, and flirted with $80 per barrel last week. It's possible that it might go to $100 or higher if the madness in the Middle East does not cease.

What should the government do if the price reached $100? I think they should either make an outright cut in fuel-duty, or make fuel-duty a function of the oil price, so that if the price rose above $100, duty would automatically fall, but could rise back to it's original level if the oil price fell, so as to keep the price at the pump stable. This would protect the economy from the ill-effects of the oil price spike and would have broad support from the public. The Lib-Dems and the Green Tories would protest - but let them. The green vote in Britain is a minority, let the two opposition parties squabble over this tiny cohort. In any case, the growth in CO2 emmissions is mainly coming from airline fuel and households, not cars. Varying the fuel-duty on petrol would of course keep our demand stable and put pressure on the Americans to cut theirs in order to affect the oil price - but this is only fair as the Americans have been free-riding on European self-restraint over fuel for decades.