Many firms are already gloomy about the future and high cost of oil is adding to the pain
FUEL duty in the UK should be cut immediately. The government has to consider the move seriously to ease the growing pressures on thousands of businesses. Th
e cut should then remain in effect until oil prices return to the levels of earlier in the year.
Our members, the people running businesses across the country, are being badly hit by the dramatic rise in their fuel bills. This not only hits transport costs but, with winter approaching, it will have a heavy impact on heating bills. These pressures are likely to significantly erode profitability at a time when many businesses are already gloomy about their commercial prospects.
Ordinarily, the Institute of Directors would be opposed to this type of active interventionism by government, but these are not ordinary times for oil prices and this is not an ordinary market. Of the 97p-per-litre fuel price, 47p goes in taxation. The market is massively distorted by government intervention. Moreover, the Chancellor has frozen fuel duty over the 2004-5 period, thereby accepting the principle that he can intervene. From an affordability perspective, remember that, in addition to fuel duty, the Chancellor is also bringing in considerable extra tax revenue at present through petroleum revenue tax and VAT on fuel.
We urge the Chancellor to impose a temporary cut on fuel duty which may need to be maintained through 2006. It is the size of the rise in such a short timescale that is hurting businesses the most; a temporary cut may be a way of easing some of that pain and allowing our members time to adjust to the exceptionally high oil prices at present.
The fuel escalator (inflation-plus increases in fuel duty) was removed in 2001 and replaced by inflation indexation at about 2p per litre. In 2002, the government froze duty, but inflation indexation returned in 2003. A freeze on duties was again imposed in 2004 and continued into 2005. The Treasury is to review whether to raise the tax in November's pre-Budget report.
The argument that temporarily reducing high fuel duties is anti-green is somewhat flawed. The demand for fuel tends to be inelastic (people have little choice but to use private road transport in many cases) and, therefore, any increase in duty is more of an exercise in raising revenue. There is a valid argument about the need for tackling road congestion and environmental issues, but the temporary reduction in fuel duty we are suggesting will have no impact on these long-term problems. The real long-term issue here is how we effect a shift towards road price charging and away from dependency on fuel duty alone.
Let's have that debate, but not today. Today, we have a more immediate problem which can be eased by the Chancellor.
Finally, while we understand the frustrations felt by fuel protesters, the IoD is opposed to any action repeating the disruption of September 2000. Those protests cost British business about £1 billion in lost output. That's a price we can't afford in today's economic climate.
Graeme Leach is the Institute of Directors' chief economist.
NO: Alistair Darling
Economic growth can only be ensured by taking action to boost supplies
THE public reaction to media reports earlier in the week that Britain could be running out of fuel has been commendable.
There is plenty of fuel available at the pumps. The refineries are open, there is no problem with supply.
The vast majority of motorists acted responsibly and sensibly by heeding advice to fill up their cars only when they needed to.
They realised that the only thing that would cause disruption and instability would be panic buying, and people responding to a shortage that did not exist.
Throughout the week we have seen a normal supply of petrol from the refineries to the pumps, and the very small number of people who turned out on Wednesday to protest did so peacefully. But that does not mean the problem of high oil prices is any less urgent.
Oil prices affect everyone - in Britain, in Europe and across the world. This is a global issue, and every country is suffering the consequences.
Of course, the government is sensitive to the concerns of motorists and hauliers. We understand the impact of rises in crude oil prices. Many people depend on their car, especially in rural areas of Scotland.
And let's not forget that many different areas of industry are affected - like airlines, for example, and thousands of smaller businesses that depend on cars and commercial vehicles for sales, supplies and distribution of goods.
No-one in government underestimates the scale of the problem. One of the best things we can do for business, and indeed the country, is to provide economic stability. We will therefore do nothing that undermines that.
That is why we need to continue to take long-term decisions on tax and spending, to support a strong economy, and to maintain low interest rates. Our economic success is based on long-term stability, not short-term decisions.
I believe the public understands that the problem we face is caused by rising crude oil prices on the global market.
We need co-ordinated global action if we are to bring down oil prices, and that's why we're joining with other countries to try to increase the supply of oil.
Rapidly growing economies like those of China and other Far Eastern countries are consuming more oil, and prices have been hit by the terrible recent events in the southern United States. All these factors - growing demand, insufficient supply, and instability in the market - have sent pump prices higher and higher.
The Chancellor has called on OPEC to increase oil supply, boost investment in oil production and refining capacity, and to make oil market data more transparent. He will take forward these proposals at the meeting of the G7 finance ministers, IMF and World Bank heads in Washington next week.
Fuel duty in Britain has come down in real terms over the past six years. Since 2000 the main rates of road fuel duty have fallen by nearly 14 per cent in real terms, saving the average motorist around 7p per litre each time he or she fills up.
We have abolished the fuel duty escalator introduced in the early 1990s which automatically increased fuel duty rises above inflation and not increased road tax for around half the cars on the road. Our strategy has helped to strengthen and stabilise our economy over the long term.
But what we cannot do is control global oil prices. Global problems need global solutions. Unfortunately, that means they take longer to sort out. But we will do everything we can to encourage OPEC to increase supplies so that prices can return to more affordable levels.
Alistair Darling is Secretary of State for Transport and for Scotland.
YOUR VIEWS
We need to act
If the present high crude oil price was simply a blip, there might be something to be said for the Chancellor cutting fuel duty, but the fact is that crude is going to get more expensive as time goes by.
We need to do two things. First, adjust our lifestyles to this fact. Second, as a nation, start investing now in the future systems which will replace oil and natural gas.
MALCOLM SLESSER
Edinburgh
No cuts
Should fuel duty be cut? No way. Has anyone looked out the window at what is happening to the world's climate? Fuel protesters are just going to have to get used to higher petrol prices. Instead of calling for the price of petrol to be cut, fuel protesters should focus their attention on trying to ensure we break our addiction to oil and develop better alternatives.
High fuel prices should be acting as an incentive to innovate, not descend into selfish protest.
ANDREA ELDERFIELD
Edinburgh
Tax windfall
I think the Chancellor is being less than genuine when he blames the oil producers for the price increases. The fact is every time the fuel companies put up the price, the Chancellor gains several times the increase as a "windfall".
STUART SIMPSON
