When Tax Hurts the Government
I read an interesting article in one of the tabloids a few days ago and I must admit that it brightened my day somewhat. It is an article that just goes to show how dim-witted our government, (and to be fair I am not only on about the current government) and the cronies that head up the relevant ministries, are. It also goes to show that although they (the government) think we are all mugs, the mugs can actually bite back sometimes. Ah the joys…
But let me give you the gist of this article. The article was entitled “Petrol Slump” and had a sub-heading of “tax blow for Treasury as drivers cut back on fuel.” Oh yes, I think you know where I am going with this.
Apparently, according to an AA report, the sale of petrol fell by a staggering 2.4 billion (yes – billion, not million) litres in the first nine months of 2011. Now, I don’t know about you but I think that is an absolutely colossal drop in petrol sales. It also meant that the heads in the Treasury LOST £1.6 billion (yes – once again, billion, not million) in tax revenue. Yay.
Why yay? Well, here’s the thing; since last May (2011), the wholesale cost of petrol (oil?) had fallen by almost 25%, but the average pump price across the country had only fallen by 4%! It’s no surprise then that this AA report also found that 12% of drivers are planning to use their cars less this year (2012) meaning that George Osborne can expect more billions of tax revenue lost this year as well.
Now, you would think that in light of such figures the government would do the smart thing and reduce their tax levy on petrol? After all, take a look at these numbers I have come up with (just search the internet – they are readily available) in terms of the breakdown of a litre of unleaded:
- Price of litre at pumps: £132.9 pence
- Duty/tax: 57.95 pence
- Product: 47.8 pence
- VAT: 22.15 pence
- Retailer: 5 pence
In essence, the government’s cut from a litre of petrol is 57.95p (duty) + 22.15p (VAT) = 80.1 pence out of 132.9 pence! Astonishing! Even I didn’t realise it was that high before I did the research. Now, suppose the dim-wits reduced the duty by just 10 pence to 47 pence per litre, just those lost 2.4 billion litres (assuming that a 10 pence reduction would get drivers back in their cars and cover the shortfall in petrol sales), would generate an astonishing £1.12 billion. If they cut the duty by 15 pence the shortfall would still generate £1billion!
Doesn’t it, therefore, make so much sense to go down the road of reducing fuel tax and stimulating the market again, rather than pig-headedly forging ahead with high (and probably higher in the not too-distant future) petrol duty?
Anyway, at the end of the day, the article made me smile and I silently congratulated the powers-that-be who run our country on their outstanding grasp of economics.
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