Tuesday, May 27, 2008

Fuel Duty and Petrol Prices

The following figures come from the AA. Unleaded petrol was introduced in 1988. The following table shows the pump price in pence per litre, and the percentage of the price that is fuel duty.

1988 36.73 61.10%
1989 38.52 59.25%
1990 42.76 58.65%
1991 46.06 61.55%
1992 46.08 65.55%
1993 49.54 67.13%
1994 51.70 69.64%
1995 54.20 73.17%
1996 56.66 76.10%
1997 61.97 77.14%
1998 65.17 81.48%
1999 70.58 81.14%
2000 80.77 75.07%
2001 76.78 75.33%
2002 74.33 76.56%
2003 76.56 75.26%
2004 80.87 73.18%
2005 87.22 68.89%
2007 95.10 66.7%

For some unknown reason their table only goes to 2005 - the 2007 figure comes from Petrol Prices.com. If you want to see the diesel prices, click the AA link - the fuel duty as a % of pump price of diesel tracks that of unleaded petrol.

There are several interesting things to note. First, in 2000, Labour abolished the fuel-price escalator that was introduced by the Conservatives in 1993, and the fuel duty as a % of the pump price immediately started to drop. Fuel duty was also frozen from 2003 to 2007.

The price at the pump at the moment for unleaded is 114.9p. This is 42% higher than the 2000 price of 80.77p, which implies an increase of 4.5% per annum. Which doesn't sound too bad put like that, till you realise that most of the increase has happened in the last couple of years.

Part of the point of fuel duty is to persuade people to buy smaller more-fuel efficient cars when they replace their existing cars. The other part is to assure manufacturers who have several years lead time when designing cars that yes, fuel-efficient cars will be marketable regardless of what happens to the oil price, thanks to fuel duty. This was the key lesson from the 70's when several American manufacturers produced innovations like electric cars, which came onstream just as the oil price collapsed circa 1985. They lost money and refused to invest anymore in the expensive technology - it's no accident that all the fuel-efficient cars come from Japan and Europe where fuel-duty has been ratcheted up.

The national fleet gets replaced on average every seven years or so. Constantly jacking up the fuel-duty should in theory have meant that by now everyone would have been driving efficient cars. Some people have switched to fuel-efficient cars - but SUVs also took off after 2000, as the plethora of 4x4s and large family cars on the roads indicate.

OK SUVs were developed for the American market, but why have so many Brits bought them? In part this must have been a function of the way the pump price remained flat at around 80p from 2000 to 2004, while earnings were rising steadily and Britain was getting rich. How many valuable commodities have a flat price for five years? Did Blair and Brown make a mistake in 2000 coming off the fuel-price escalator? If staying on had forced everyone into smaller cars by now, eight years down the line, would people be able to withstand the oil price spike better now?

The government has also been trying hard via speed-cameras and advertising to get people to slow down when driving, not just because of road deaths, but because speeding burns excessive fuel. We've failed, thanks to campaigns in the Daily Mail about the right of the motorist to speed. Only now with the oil price hike are people going to the AA's website to read about how sticking to the speed limit saves you money.

Funnily enough the same lorry drivers who forced us off the fuel-price escalator in 2000 are complaining again now. The government shouldn't budge. It just means postponing the evil day when people have to adjust to a world of high oil demand and hence high oil prices. I note the Conservatives are keeping silent about this. Their idiot supporters are much more vocal though. It's Gordon's fault the pump price is so high, they yell, ignoring the fact that the fuel duty hasn't increased nearly so fast under Labour as under the Tories. These silly people probably believe that a Conservative government will cut fuel duty. Some probably believe the Conservatives will strike oil in Notting Hill. As if.

1 comment:

Tom Freeman said...

The AA does do monthly fuel price reports that go beyond 2005, but they don't give averages for the whole year.