The business - Patrick Hosking marvels at the beauty of fuel tax

"There's no such thing as a good tax," Winston Churchill grumbled. He was wrong: fuel tax is a huge

I heard about the fuel duty row last week while on holiday in rural Majorca. Every morning I would get up, check that the sun was still shining on our little patch of paradise, hop in the hired Fiat and drive to the nearest shop for bread and croissants - seven kilometres there, seven kilometres back. I would shift half a tonne of metal 14 kilometres to secure a fractionally tastier breakfast.

While back in the UK, fuel protesters frothed and the public prints howled and ministers back-pedalled, my petrol profligacy was a telling demonstration of how fuel duty - wherever you may be - is pretty much the perfect tax.

Admittedly, a litre of unleaded on the island is only 61p, compared to 83p or so in Britain. But the principle was the same. In pursuit of the most trifling of pleasures, I thought nothing of jumping behind a steering wheel and, in the process, flinging gold at the Spanish exchequer.

Among all the assorted taxes, duties, tariffs, licences and other grabs by the state, fuel duty is simply the most brilliant.

"There's no such thing as a good tax," Winston Churchill grumbled back in 1937. But fuel duty comes awfully close.

First, it's a huge earner. After the big trio of income tax, National Insurance and VAT, and the middle-weight corporation tax, fuel duty comes next, last year yielding £23bn. That is more than council tax, more than business rates and more than tobacco, booze and gambling duties added together. Fuel duty raises three times as much as stamp duty, nine times as much as inheritance tax, 19 times as much as capital gains tax and 29 times as much as the climate-change levy.

Second, petrol is addictive. We continue to buy it even when the price goes up. It can be taxed with impunity. We have not got anywhere near the stage where a duty hike actually reduces the total tax take because so many people stop buying. That is what has happened in the spirits industry, or at least the Scotch Whisky Association has managed to convince ministers that it has - hence the lengthy duty freeze.

But fuel duty's virtues do not stop there. It is comparatively cheap and easy to collect. Instead of the horrendous bureaucracies of income tax and VAT, say, fuel duty collection is a model of efficiency, merely requiring the co-operation of a handful of suppliers, rather than millions of consumers. Contrast that with the TV licence, say.

It is extremely hard to evade, too. Most of us have no choice but to pay up. There are farmers and boating enthusiasts who secretly put red diesel (lower-taxed fuel supposedly earmarked for agricultural and nautical use only) into their cars; but actually this kind of bootlegging is a minority sport.

Compare that to tobacco: vast quantities of cigarettes are now smuggled into the country and sold under the counter in pubs and at boot sales. With firms and individuals able to fiddle their reported profits and their income and VAT returns, fuel duty is one of the few taxes the determinedly dishonest actually pay.

Another advantage, politically at least, is that it is relatively progressive, in that it hits the better-off hardest. The Automobile Association, I notice, has been trying to spin the line that it hits the poor hardest. But the poorest tend not to use cars, and those who do, don't commonly travel long distances in gas-guzzlers. Michael Howard's claim that the proposed 1.5p hike in September would cause real hardship to many people is stretching credibility. The proposed hike would add just £15 or £20 to the annual fuel bill of the driver of a reasonably fuel-efficient mid-range car doing 10,000 miles a year.

And then there are the environmental grounds for fuel tax. To slow global warming, to reduce asthma and other fume-related illnesses and to cut

congestion, noise and accidents, anything that deters car use is a positive. Congestion costs UK business £18bn, according to the Confederation of British Industry. The health costs of exhaust pollution could be anything between £11bn and £20bn.

So, almost an ideal tax - a fact which has not been lost on the Tories, despite Howard's support for the fuel protesters. In the last six years of Conservative rule, duty on unleaded petrol was raised from 22.41p a litre to 36.86p, up 14.45p. In the first seven years of Labour, it was raised from 36.86p to 50.19p, up 13.33p.

But it is not a perfect tax. It is not fairly applied. Other, more polluting forms of transport such as aviation escape it. And it is too blunt an instrument. The motorist tootling along an empty road is penalised at the same rate as his counterpart causing a traffic jam.

Maybe in time we will switch over to a sophisticated system of road pricing. The cost of the necessary technology has slumped. The gubbins could be fitted at a cost of only £50 a car, according to the Environmental Transport Association. And Ken Livingstone has shown the way with his congestion charge in London.

In the meantime, a hearty two and a half cheers for fuel duty.

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