16 thoughts on “Fuel duty: the hidden costs”

  1. Posted 03/09/2009 at 10:06 | Permalink

    All taxes are problematic, but I’m not sure I agree with your drift on this. I would sooner see taxes on fuel than payroll taxes or income tax, which are likely to have a more significant effect on employment. Lower public spending preferable to either.

  2. Posted 03/09/2009 at 10:06 | Permalink

    All taxes are problematic, but I’m not sure I agree with your drift on this. I would sooner see taxes on fuel than payroll taxes or income tax, which are likely to have a more significant effect on employment. Lower public spending preferable to either.

  3. Posted 03/09/2009 at 10:34 | Permalink

    Len – I agree that payroll taxes or income tax are particularly undesirable in terms of employment. However, the problem with fuel duty is that it taxes one particular economic activity at a punitive rate, close to 70%, which means its distorting effects are very pronounced. There is a strong argument for having low rates across the board rather than the huge variation we see now.

  4. Posted 03/09/2009 at 10:34 | Permalink

    Len – I agree that payroll taxes or income tax are particularly undesirable in terms of employment. However, the problem with fuel duty is that it taxes one particular economic activity at a punitive rate, close to 70%, which means its distorting effects are very pronounced. There is a strong argument for having low rates across the board rather than the huge variation we see now.

  5. Posted 03/09/2009 at 11:06 | Permalink

    Of course, Richard Wellings doesn’t mention that many people are forced to travel long distances to work because stamp duty on house purchases is so high – people simply can’t afford to move closer to work, so find it very difficult to avoid or minimise fuel duty.

    Richard Wellings also doesn’t mention is that fuel tax isn’t just a tax like any other. There is a cost to using roads – those roads have to be provided, maintained and policed, so it’s right that there is a tax approximately proportional to their use (admittedly, road charging is another – though expensive to collect – solution). Is fuel tax is approximately in line with those costs, including a return on publicly owned assets.

  6. Posted 03/09/2009 at 11:06 | Permalink

    Of course, Richard Wellings doesn’t mention that many people are forced to travel long distances to work because stamp duty on house purchases is so high – people simply can’t afford to move closer to work, so find it very difficult to avoid or minimise fuel duty.

    Richard Wellings also doesn’t mention is that fuel tax isn’t just a tax like any other. There is a cost to using roads – those roads have to be provided, maintained and policed, so it’s right that there is a tax approximately proportional to their use (admittedly, road charging is another – though expensive to collect – solution). Is fuel tax is approximately in line with those costs, including a return on publicly owned assets.

  7. Posted 03/09/2009 at 11:44 | Permalink

    HJ – It’s not just stamp duty. The planning system stops settlements adapting to changing economic conditions, leading to inflated house prices in boom areas, which in turn raise the costs of relocation.

    With regard to fuel duty, motoring taxes exceed road expenditure by a factor of about four. The ratio is rather worse for car drivers since heavy goods vehicles do far more damage to the roads.

    The situation regarding a return on assets is complicated as construction was funded through taxation and market prices are largely absent. Privatisation and pricing, at least of trunk roads and motorways, could help resolve this problem. See the final chapter of The Railways, the Market and the Government (which also deals with environmental costs).

  8. Posted 03/09/2009 at 11:44 | Permalink

    HJ – It’s not just stamp duty. The planning system stops settlements adapting to changing economic conditions, leading to inflated house prices in boom areas, which in turn raise the costs of relocation.

    With regard to fuel duty, motoring taxes exceed road expenditure by a factor of about four. The ratio is rather worse for car drivers since heavy goods vehicles do far more damage to the roads.

    The situation regarding a return on assets is complicated as construction was funded through taxation and market prices are largely absent. Privatisation and pricing, at least of trunk roads and motorways, could help resolve this problem. See the final chapter of The Railways, the Market and the Government (which also deals with environmental costs).

  9. Posted 03/09/2009 at 18:52 | Permalink

    Vehicle-fuel duty supposedly serves a dual purpose – partly revenue-raising, partly Pigovian internalization of social costs. It appears to be heavily over-priced for the latter purpose, compared to other activities with similar social costs. It is also not obvious why this particular form of energy-use should be targeted as a source of tax-revenues, so much more heavily than other forms. As Richard says, it distorts economic choices. Full road-pricing involves excessive intrusion and transaction costs, but moving some motoring costs to a Swiss-style vignette system on major roads, and re-balancing the externality-pricing mechanisms across all energy-consumption would be a big improvement.

  10. Posted 03/09/2009 at 18:52 | Permalink

    Vehicle-fuel duty supposedly serves a dual purpose – partly revenue-raising, partly Pigovian internalization of social costs. It appears to be heavily over-priced for the latter purpose, compared to other activities with similar social costs. It is also not obvious why this particular form of energy-use should be targeted as a source of tax-revenues, so much more heavily than other forms. As Richard says, it distorts economic choices. Full road-pricing involves excessive intrusion and transaction costs, but moving some motoring costs to a Swiss-style vignette system on major roads, and re-balancing the externality-pricing mechanisms across all energy-consumption would be a big improvement.

  11. Posted 04/09/2009 at 08:53 | Permalink

    Richard – I was well aware that HGVs proportionately do far more damage to the roads and cause more accidents than cars. Independent assessments have shown that, if anything, HGVs are undertaxed. Quite simply, we are subsidising companies to move things around. Perhaps the likes of Tesco would think twice about centralised sourcing and depots if they had to pay the full cost of their transport.

    Whether or not road construction was funded by taxation isn’t irrelevant. There is a publicly owned asset on which the government should be seeking a reasonable return from users so that general taxpayers can be taxed less in future.

  12. Posted 04/09/2009 at 08:53 | Permalink

    Richard – I was well aware that HGVs proportionately do far more damage to the roads and cause more accidents than cars. Independent assessments have shown that, if anything, HGVs are undertaxed. Quite simply, we are subsidising companies to move things around. Perhaps the likes of Tesco would think twice about centralised sourcing and depots if they had to pay the full cost of their transport.

    Whether or not road construction was funded by taxation isn’t irrelevant. There is a publicly owned asset on which the government should be seeking a reasonable return from users so that general taxpayers can be taxed less in future.

  13. Posted 04/09/2009 at 10:59 | Permalink

    HJ – There are enormous difficulties calculating whether or not HGVs are ‘undertaxed’ in the absence of market prices. Moreover, one should not forget that HGVs are heavily regulated, so very substantial additional costs are imposed by government on hauliers and their customers, such as statutory weight limits, vehicle emissions standards etc.

    Placing as many roads as possible in the private sector is surely the solution to the asset question. On restitution grounds, there may be a case for allocating shares to motorists and/or other taxpayers rather than conducting a conventional flotation. Moreover, the government would almost certainly squander the proceeds of a sell off.

  14. Posted 04/09/2009 at 10:59 | Permalink

    HJ – There are enormous difficulties calculating whether or not HGVs are ‘undertaxed’ in the absence of market prices. Moreover, one should not forget that HGVs are heavily regulated, so very substantial additional costs are imposed by government on hauliers and their customers, such as statutory weight limits, vehicle emissions standards etc.

    Placing as many roads as possible in the private sector is surely the solution to the asset question. On restitution grounds, there may be a case for allocating shares to motorists and/or other taxpayers rather than conducting a conventional flotation. Moreover, the government would almost certainly squander the proceeds of a sell off.

  15. Posted 06/11/2009 at 21:52 | Permalink

    Well yes the ideal response to global warming should be a carbon tax, but this doesnt seem to be happening, and at least a tax on petrol is targetting one significant contributor. It is also a tax that relatively speaking can be imposed unilaterally without a big competitive impact on the national economy. So I dont really understand why in the current employment environment we are not reducing NI and putting even more onto petrol. Obviously the transport lobby will create a fuss because it will impact the business but if you want to address this particular environmental issue you are not going to be able to get around that.

  16. Posted 06/11/2009 at 21:52 | Permalink

    Well yes the ideal response to global warming should be a carbon tax, but this doesnt seem to be happening, and at least a tax on petrol is targetting one significant contributor. It is also a tax that relatively speaking can be imposed unilaterally without a big competitive impact on the national economy. So I dont really understand why in the current employment environment we are not reducing NI and putting even more onto petrol. Obviously the transport lobby will create a fuss because it will impact the business but if you want to address this particular environmental issue you are not going to be able to get around that.

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