Tuesday, 26 June 2012

Fuel duty rise cancelled

The Chancellor of the Exchequer, George Osborne, has today cancelled the fuel duty hike of 3p that was due in August. That's good news!

It is actually quite surprising. We have been paying up around 145p per litre until recently, and now it is down to 132p approx. The rule with petrol prices is that once the cost of a litre has reached  a new high and the government has seen that the world did not end, then there is no reason for it not to stay that high forever more - so the recent fall caused by the fall in crude prices should have been just the excuse the government needed to slap another tax on.

So why this uncharacteristic generosity?

Osborne is continually tugged in several directions: fear of economic collapse, hence QE; desire to tax more and more; and fear of hyperinflation. It seems this last fear is briefly in the ascendant - he wants to keep inflation down and so has scrapped the tax. Since inflation has actually been coming down in recent months anyway, not as far down as the official target of 2% of course, but down from local peaks, this fear of inflation might seem unwarranted. Most likely Osborne knows something we do not.

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