Fuel in Britain is expensive. Very expensive. A 2012 article by This is Money placed Britain as the 7th most expensive place in the entire world to buy fuel, calculating that more than 10% of people's income is spent at the pumps.
But why should this be the case? What is it about Britain that makes fuel so expensive? What are the implications for the wider economy? Why does Britain suck? What can we do to fix it?
The Great British Fuel Tax Swindle
Politicians tend to come in two flavours: 1) Disingenuous, or 2) Dishonest. In the case of fuel prices, however, they all tend to be out-right liars.
Many a time I've heard politicians bemoan the cost of fuel and blame external factors, such as increased demand from China, fluctuations in the price of crude oil or some other event happening on foreign shores. As we shall soon see, such arguments are complete bunk - lies foisted upon the British public by an out-of-touch political elite who have forgotten that the point of government is to serve the people, not the other way around. Not convinced? I'll prove it!
Above is a chart I created to explain the true cost of fuel at the pump. Take a few moments to study it and see if you can come to a conclusion that no politician will tell you.
If you said something along the lines of, "Crikey! Almost 60% of the price I pay for fuel is tax!" you've hit the nail square on the head. That's right - almost 60 pence out of every £1 spent at the pumps goes straight to the Government. Let's take a closer look at those figures:
Retail Price: This is the price of the fuel that a petrol station charges you and covers the cost of production, operational costs and profit margin of the oil company. There are no poor oil companies, so we can imagine that the profit margin on fuel is quite healthy, but even so the oil companies are able to sell a litre of diesel for less than it would cost to buy a litre of milk.
Fuel Duty: This is the tax applied to fuel. It currently stands at about 58 pence per litre - more than the retail price!
VAT: The VAT on fuel is calculated on top of the Retail price and the Fuel Duty - yes, you pay a tax on top of a tax!
Clearly, then, whatever effect increased demand from China (or whatever other excuse is used) is on oil prices the factual, demonstrable, provable case is that fuel prices in Britain are high because of taxation and for no other reason. Bear that in mind the next time you hear a politician spouting lies.
The Wider Economic Impact
"Well," you may be thinking to yourself, "nice rant, but I don't have a car so how does this affect me?" The truth is that high fuel prices - caused by high taxation - affect us all on a daily basis and is crippling the British economy.
You don't need to be an economist to understand a few key fundamentals about how the economy works:
First, understand that the basis of the economy relies on the production and sale of goods and services. The production of goods and services relies heavily on transport (and other things) which are in turn reliant on fuel. When the price of fuel is high (due to taxation!) the cost to produce those goods and services increases, which in turn causes the price of those goods and services to also rise. Subsequently consumers, faced with higher prices, consume fewer goods and services leading to less production, jobs cuts and descends into a spiral of doom.
Secondly, when the Government takes money out of people's pockets via high fuel taxes it means that that money is no longer available to be spent into the economy in other, more productive ways - again leading to less consumption of goods and services with all the negative knock-on effects.
But doesn't the Government need this money?
Taxation is a very blunt instrument, but it seems positively razor-edged compared to Government spending. Unfortunately Keynesian economic theory has had something of a resurgence in political circles in recent years despite several key facts:
1) Keynesian stimulus packages do not work, never have and should by now be completely discredited. (Here is a good read for those who are interested)
2) People are far more effective at spending money in ways that boost the economy than the Government ever could or will be.
3) You cannot tax your way to prosperity - it simply doesn't work!
Another key point to understand is this: as money flows through the economy, creating jobs, increasing output and increasing consumption those transactions are taxed. So in effect, while it may take longer to get there, that tax money will eventually arrive in the Government's coffers - in fact more of it will, because when the economy is doing well tax receipts increase!
So how much money are we talking about?
"All well and good", you may be thinking, "but just how much money are we actually talking about? Is he making a mountain out of a mole hill?"
Good question!
According to HMRC's official statistics, in 2012-2013 the fuel duty alone on petrol and diesel generated over £25 Billion in tax revenue. That's £25,000,000,000! And you can add to that the VAT paid on that fuel duty - a further £5,000,000,000 - and another £4-5,000,000,000 paid in VAT on the retail price of the fuel and come up with an absolutely whopping £35,000,000,000 (that is £35 Billion!) lost to the economy via taxation on fuel alone!
But what about the environmental case?
Many people support the notion of high fuel taxes for environmental reasons, such as cutting down on unnecessary journeys etc. These are well meaning people, but are ultimately wrong-headed for one simple reason:
You cannot solve environmental issues by destroying the economy and making people poorer.
I would go further and say that Governmental spending is far more environmentally hazardous than the spending of the people could ever be.
Conclusion
We have shown that fuel prices in Britain are high due to excessive taxation, that this has many negative knock-on effects in the economy and is, ultimately, harmful to us all.
So what can we do to fix it? We should petition and support only those political parties who commit to slashing fuel duty and VAT by significant amounts. This would provide a huge economic stimulus - one that Government is incapable of providing - and help get Britain out of the pit of despair.
I always thought that petrol stations would be more honest if they changed their names to TAX stations
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