The case against a “fair fuel stabiliser”

This costly measure would mean major tax rises or spending cuts elsewhere.

The only time that William Hague led Tony Blair in the polls was during the fuel protests of 2000. Mindful of the damage that high petrol prices can inflict on a government and of Labour's increasingly sharp attack on the "cost of living", the coalition is assembling what has been described as a "rescue package" for motorists.

Today's Times (£) reports that a "fair fuel stabiliser", a measure first promised in 2008 but since quietly dropped, is being "actively looked at" ahead of the Budget on 23 March. With this in mind, it's worth restating the practical case against the policy. Many supporters of a fuel stabiliser make the false assumption that the state receives a windfall in tax revenues when oil prices rise.

George Osborne, for instance, once claimed: "Currently, when oil prices rise, the government receives a windfall increase in tax revenues, mainly due to taxes on North Sea oil production. And when oil prices fall, the government suffers an unexpected shortfall in revenues for the same reason."

In fact, as I've noted before, higher prices rarely increase revenue because of the overall effect on economic performance. A summer analysis by the Office for Budget Responsibility 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 shows, higher oil prices generally lead to a fall in tax revenues.

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In other words, the government would need to raise taxes or cut spending elsewhere if it lowered duty on petrol. Even those who should be natural supporters of the measure, such as the chairman of the Retail Motor Industry Federation, Brian Madderson, aren't convinced. In a recent letter to George Osborne, Madderson wrote: "Whilst the idea undoubtedly has popular appeal, the reality is that any such mechanism would require detailed investigation, involvement of industry and be both complex and costly to manage."

The Chancellor should hold his nerve and face down the motorists' lobby.

George Eaton is political editor of the New Statesman.

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The UK is dangerously close to breaking apart - there's one way to fix it

We must rethink our whole constitutional settlement. 

When the then-Labour leader John Smith set up a report on social justice for what would be the incoming government in 1997, he said we must stop wasting our most precious resource – "the extraordinary skills and talents of ordinary people".

It is one of our party’s greatest tragedies that he never had the chance to see that vision put into practice. 

At the time, it was clear that while our values of equality, solidarity and tolerance endured, the solutions we needed were not the same as those when Labour was last in power in the 1970s, and neither were they to be found in the policies of opposition from the 1980s. 

The Commission on Social Justice described a UK transformed by three revolutions:

  • an economic revolution brought about by increasing globalisation, innovation and a changing labour market
  • a social revolution that had seen the role of women in society transformed, the traditional family model change, inequality ingrained and relationships between people in our communities strained
  • a political revolution that challenged the centralisation of power, demanded more individual control and accepted a different role for government in society.

Two decades on, these three revolutions could equally be applied to the UK, and Scotland, today. 

Our economy, society and our politics have been transformed even further, but there is absolutely no consensus – no agreement – about the direction our country should take. 

What that has led to, in my view, is a society more dangerously divided than at any point in our recent history. 

The public reject the status quo but there is no settled will about the direction we should take. 

And instead of grappling with the complex messages that people are sending us, and trying to find the solutions in the shades of grey, politicians of all parties are attached to solutions that are black or white, dividing us further. 

Anyone in Labour, or any party, who claims that we can sit on the margins and wait for politics to “settle down” will rightly be consigned to history. 

The future shape of the UK, how we govern ourselves and how our economy and society should develop, is now the single biggest political question we face. 

Politics driven by nationalism and identity, which were for so long mostly confined to Scotland, have now taken their place firmly in the mainstream of all UK politics. 

Continuing to pull our country in these directions risks breaking the United Kingdom once and for all. 

I believe we need to reaffirm our belief in the UK for the 21st century. 

Over time, political power has become concentrated in too few hands. Power and wealth hoarded in one corner of our United Kingdom has not worked for the vast majority of people. 

That is why the time has come for the rest of the UK to follow where Scotland led in the 1980s and 1990s and establish a People’s Constitutional Convention to re-establish the UK for a new age. 

The convention should bring together groups to deliberate on the future of our country and propose a way forward that strengthens the UK and establishes a new political settlement for the whole of our country. 

After more than 300 years, it is time for a new Act of Union to safeguard our family of nations for generations to come.

This would mean a radical reshaping of our country along federal lines where every component part of the United Kingdom – Scotland, Wales, Northern Ireland and the English regions – take more responsibility for what happens in their own communities, but where we still maintain the protection of being part of a greater whole as the UK. 

The United Kingdom provides the redistribution of wealth that defines our entire Labour movement, and it provides the protection for public finance in Scotland that comes from being part of something larger, something good, and something worth fighting for. 

Kezia Dugdale is the leader of the Scottish Labour party.