Why a “fair fuel stabiliser” would be bad policy

The government does not receive a “windfall” from higher petrol prices.

There's a notable interview with Robert Chote, the head of the Office for Budget Responsibility, in today's Financial Times in which he repudiates the notion of a "fair fuel stabiliser".

Philip Hammond, the Transport Secretary, has promised to "look at the practicality" of this measure in time for the next Budget and the government is under significant pressure from the tabloids to limit petrol prices. But Chote warns that the fuel stabiliser is premised on the false assumption that the state receives a windfall in tax revenues when oil prices rise. In fact, higher prices rarely increase revenue because of the overall effect on economic performance.

Chote refers to a summer analysis by the OBR which concluded that the "overall effect of a temporary oil-price rise would be 'close to zero' " and that "a permanent rise would create a loss to the public finances". This is because higher pump prices "reduce the demand for fuel, lowering fuel duty receipts" and push up the indexation of tax thresholds, benefits, public-service pensions and index-linked gilts.

As the data below confirms, higher oil prices would generally lead to a fall in tax revenues.

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This doesn't mean that a fuel stabiliser is unworkable, but it does mean that the government would need to raise taxes elsewhere if it lowered duty on petrol.

Chote's conclusion is that "a fair fuel stabiliser would be likely to make the public finances less stable rather than more stable". But will ministers put short-term political considerations first? We'll soon find out.

George Eaton is political editor of the New Statesman.

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Douglas Carswell leaves Ukip to become independent MP

The Clacton MP quits his party but insists he will not rejoin the Conservatives or trigger a by-election. 

Douglas Carswell has long been a Ukip MP in name only. Now he isn't even that. Ukip's sole MP, who defected from the Conservatives in 2014, has announced that he is leaving the party.

Carswell's announcement comes as no great surprise. He has long endured a comically antagonistic relationship with Nigel Farage, who last month demanded his expulsion for the sin of failing to aid his knighthood bid. The Clacton MP's ambition to transform Ukip into a libertarian force, rather than a reactionary one, predictably failed. With the party now often polling in single figures, below the Liberal Democrats, the MP has left a sinking ship (taking £217,000 of opposition funding or "short money" with him). As Carswell acknowledges in his statement, Brexit has deprieved Ukip of its raison d'être.

He writes: "Ukip might not have managed to win many seats in Parliament, but in a way we are the most successful political party in Britain ever. We have achieved what we were established to do – and in doing so we have changed the course of our country's history for the better. Make no mistake; we would not be leaving the EU if it was not for Ukip – and for those remarkable people who founded, supported and sustained our party over that period.

"Our party has prevailed thanks to the heroic efforts of Ukip party members and supporters. You ensured we got a referendum. With your street stalls and leafleting, you helped Vote Leave win the referendum. You should all be given medals for what you helped make happen – and face the future with optimism.

"Like many of you, I switched to Ukip because I desperately wanted us to leave the EU. Now we can be certain that that is going to happen, I have decided that I will be leaving Ukip."

Though Ukip could yet recover if Theresa May disappoints anti-immigration voters, that's not a path that the pro-migration Carswell would wish to pursue. He insists that he has no intention of returning to the Conservatives (and will not trigger a new by-election). "I will simply be the Member of Parliament for Clacton, sitting as an independent."

Carswell's erstwhile Conservative colleagues will no doubt delight in reminding him that he was warned.  

George Eaton is political editor of the New Statesman.