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Fuel price stabiliser doesn't add up

Former campaigner's picture

19 January: As the price of fuel creeps steadily higher, pundits are once more calling for a fuel price stabiliser. I wouldn't hold my breath waiting for it.

The premise is alluringly simple. As the price of fuel rises, the Treasury rakes in loads of extra money, so why not use some of this windfall to cut the cost of petrol.

There are three major problems. Firstly, the money the Treasury makes from higher fuel prices is more than offset by the additional cost of running Government services and the lower overall revenues as people spend more on fuel instead of on other purchase. 

The Office of Budget Responsibility just finished a scoping report into higher fuel prices. It concluded that the "detrimental effect on receipts from lower output more than offsets the boost to UK oil and gas revenues."

Secondly, this Government (and the previous Labour Government) has hung its climate change reduction strategy on market forces. They're anticipating major investment in cleaner cars, fueled by rising oil prices.

Fiddling about with the price of oil delays and ultimately derails any marginal progress towards greener vehicles, because when oil is cheap, there's no incentive to buy more efficient cars. No incentive, no carbon reduction strategy. It (sadly) is just that simple.

Finally, there is the blindingly obvious problem that what goes down must also go up. If the stabiliser deflates the pump price of petrol and diesel when oil prices rise, it also has to push them up when the price of oil falls.

I'd hate to be the Chancellor explaining to angry tabloids why fuel costs are rising in the UK when they're falling across Europe.

The fuel price stabiliser is one of those policies that every politician loves: something that sounds great in a soundbite, but stands no chance of being implemented. Just don't expect to see it at a petrol station near you.