Expert Blog

Another call for higher fuel taxes

The Syrian refugee crisis and the cost of petrol may seem totally unrelated – but, if the German finance minister Wolfgang Schaeuble gets his way, they won’t be in future. He’s suggested a special levy on petrol to help fund the Continent’s response to this global calamity. In his own words:

‘If national budgets or the EU budget are insufficient, let’s agree to set up, for instance, a tax of a certain amount on each litre of petrol. This way we would have the means for a European response to the refugee issue.’

Of course, this idea is barely even in the planning stage. Any EU-wide tax on petrol would need to be ratified by the countries involved. Mr Schaeuble cannot just impose it unilaterally.

But his words are still indicative of what politicians, from all corners of the EU, might be thinking at the moment. Of all the thousands of taxable items that Mr Schaeuble could have mentioned, which one did he choose? Petrol. This is because it’s a guaranteed source of revenue – there are millions of motorists who cannot do their motoring without it – and also because the diminishing price of oil has brought the price of petrol down with it. Better to increase fuel taxes now, the argument goes, than when fuel is already expensive.

This, as we’ve said before now, is the argument that George Osborne is probably turning over in his mind. The forces pushing him to raise fuel duty are immense. It wouldn’t just help him reduce the deficit; it wouldn’t just satisfy the judges who are urging him to act against pollutants; it might also now be ordered by Brussels.

And the forces resisting a hike in fuel duty? A recent edition of The Sun suggested that motorists aren’t feeling the full effect of reduced oil prices; that petrol would be 5p a litre cheaper if all the savings were being passed on. This is the flipside of the argument we mentioned above. Raising fuel duty could just aggravate those motorists who feel that we should be benefitting more from this period of cheap oil.

In any case, we predicted that oil would be one of the main stories of 2016, and it’s certainly proving to be that. Thanks to the great decline of this commodity, finance ministers across Europe have some horribly tricky decisions to make – and, perhaps, the voters too.      

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