Thursday 24 March 2011

Travels and Budget

I have been away for the last few weeks travelling to a very different place than E17 (and cycling a little bit there as well). 

In the meantime, I notice that another budget has happened. One that will be a "budget for growth" (can one imagine a chancellor announcing a budget that isn't "for growth"?!)

For the "and finally" flourish at the end of the speech, the chancellor is knocking off 1p off fuel duty, postponing the 4p rise and cancelling the fuel escalator.

As the BBC reports, the chancellor

.. told MPs "the cost of filling up a family car such as a Ford Focus has increased by £10" and he said he wanted to ease the burden on hard-pressed families.

Presumably there are no hard-pressed families who don't own a car. 

It is somewhat difficult to reconcile any government green credentials with this budget move. By keeping the fixed costs of car ownership the same (VED and so on) and reducing the cost of fuel, the move will make the total cost of ownership of a car a bit cheaper but the marginal cost of driving extra mile a lot cheaper. In essence if one owns a car and pays the fixed costs, then the comparative costs of using a car for a particular trip against public transport has gone even more in favour of the car.

It is fair to say that most people won't give up access to a car completely. I certainly wouldn't. And neither should it be necessary to do so to get people using other forms of transport for many journeys - after all, the Netherlands has high car ownership, alongside the best cycling modal share in Europe. But whilst the marginal cost of each journey is cheaper than alternatives, and the roads are geared completely towards the private car, it is unlikely that other transport options stand much of a hope. Either people move away from private transport by wanting to reduce cost or because other forms of transport are more pleasant, quicker, and direct than using the car. In the case of the UK at the moment, the marginal cost of driving isn't enough to get many people to switch and the roads are deeply unpleasant places for non-motorists. Any government campaigns for cycling in the light of this are either cynical ploys at looking "green" or the product of a group so optimistic that they must border on the deranged.

If the government was determined to use fuel as a mechanism for "easing the burden" (even though this is a monstrously inefficient way of targeting tax relief) there is a possibility to lighten the tax load on car owners and also discourage car usage where other options exist. This would be to reduce some of the fixed costs imposed such as VED, but increase fuel duty. This wouldn't penalise people for owning a car (which most car-owners wouldn't change) but would penalise for excessive use (which most car owners could change relatively easily). But then the treasury would be in significant danger of losing revenue - they love the fixed costs because they know people won't get rid of their car completely, and hate the tax on extra mileage precisely because people could more easily save this. In reality most people will continue to spend around the same on fuel as it has been seen time and again that people will use cars more the cheaper they get. So, the government gets a nice headline, but in reality won't have to stomach much, if any, loss of fuel tax revenue whilst finding the perfect excuse to add on taxation at the oil company end. But maybe I am just cynical...


  1. Some years ago I responded to a HM Revenue & Customs consultation on car taxation. My suggestion was precisely yours - reduce the cost of owning a car while increasing the cost of using it, so for an average driver the cost is stable. The government collects loads of statistics which would enable them to calculate the cut-off and the effect of varying different tax components.

    We are permitted two rates of VAT (currently 5% and 20%) so you can reduce VAT on annual, or fixed, or capital costs like the purchase of the car, spare parts, repairs and servicing. Cutting VAT on these would permit a reduction in insurance premiums. You could also reduce VED (although you might want still to penalise gas guzzlers with higher charges)

    Then you stuff up duty sharply. That makes driving more expensive per mile. It also collects more tax from foreign truckers - simples!

    I got a polite, but non-committal, response