The attached article, from The Daily Mail, tries to make the case as only the Mail can. Poor oppressed motorists and consumers are unfairly put upon by a cruel government.
The petitioners to the Minister will also suggest that lower fuel duty will allow the economy to recover as people are prepared to take to the roads again and goods will be transported more cheaply.
There are several points of economics.
1. While demand for fuel has fallen as prices have risen (by 19% in two years) the elasticity of demand is still inelastic. This is because there are few substitutes and its necessary for most people to get to work, the shops and pursue a normal life. Goods also have to be moved to customers.
2. While the tax on fuel is high it is there to help cover the external costs of travel. This includes carbon and other emissions and congestion. These negative externalities are significant and while difficult to measure most economists consider the fuel duty does not yet cover them.
3. The supposed macroeconomic boost of a cut in fuel duty is unlikely to make much difference to overall AD, but a cut in VAT would be more effective. Whether businesses will welcome the expense of changing VAT rates twice more is less clear.
Enjoy this rare link to one of the less credible newspapers, but beware their biased and rabble rousing views.
I believe reducing the prices on fuel is good. Firstly, the government are taking advantage of the huge prices placed on petrol because there are a lack of subsidies. This manipulation irritates drivers and this is the reason why there is groups against government policies respectively, and even why there is crime because the workers in labour who have low incomes can not afford to keep a car running due to the fuel prices and so they steal the cars just for joy rides. In addition, negative externalities such as pollution are not easy to measure and so to put an extensive price tag on such a thing would be wrong. People do not wish for estimations and uncertainty! In addition, the externalities (negatives) are weighed up by the positives that cars bring to society. It means people get to work quicker and therefore means les people get sacked (increase in unemployment). Due to the rising costs, there are less people on the roads. Though not yet occuring, I can see that in the future due to high fuel prices, the employed will take public transport at such a dependable level that the prices, which are already increasing, will be mainuplated and increased to so much that people will have to take bike or get horses to work like the good 'ol days!
ReplyDeleteI think petrol duties really should be reduced. As it says on the Daily Mail, the duty is up to 60% of the price of the petrol. This huge hike in market prices are, I feel, contributing to the lack of efficiency and very high public transport prices in this country. It recently was revealed that Britain's train came bottom on a study of all the rail networks in Europe and the high petrol prices are what is keeping the train prices competitive due to this somewhat artificial increase in the cost of supply. If the duty on fuel was cut, it would force the trains to cut their prices and improve their services for fear of a large fall in demand as driving is more convenient and would become cheaper.
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