Cardiac Arrest On The Forecourt

THURSDAY, APRIL 08, 2010

Cardiac Arrest On The Forecourt

Change like cutting fuel tax back to 80s levels

This afternoon Tyler suffered a cardiac arrest on the forecourt. A credit cardiac arrest. For the first time ever, the price of filling his fired up gas guzzling Quattro topped 80 quid.

80 friggin quid!

Tyler can still remember being shocked when the Iran Iraq War sent the price of a gallon soaring to the exhorbitant level of £1. But that's a dream compared to today's all-time record price of £5.46 per gallon.

Fuel prices have now reached record highs. Is the problem greedy oil barons and speculators, as Bishop Snow preaches, or our hippy eco-wibbling government?

Here's a chart based on the official price series from the Department of Energy and Climate Change. It shows the pump price of unleaded petrol, and the amount accounted for by tax (duty and VAT):

The impact of tax jumps right out: of today's average £1.20 per litre pump price, just 42 pence actually pays for the petrol. The other 78 pence (65%) is duty and VAT, going to the government. Which means that of Tyler's 80 quid, a staggering £52 went to the government. Or to put it another way, without tax, Tyler could have filled up for £28.

So we can be quite clear - when it comes to the level of pump prices, it's the government that's squarely to blame.

However, when it comes to the 28% increase in pump prices over the last 12 months, it turns out that tax only accounts for just over one-third of it (despite the 2.5% hike in VAT and this week's increase in fuel duty). The rest is down to market fluctuations.

Driven by the realisation that the Far East is still growing, and commodity hungry, the dollar price of crude oil is up two-thirds over the past year:

Which brings us back to sterling. Oil is priced in US dollars, and as sterling gets weaker against the dollar, our forecourt prices automatically rise.

As it happens, sterling is a little higher against the US dollar over 12 months, but it's still down a whacking 25% since 2007. And unless we tackle our fiscal problems with convincing determination, sterling will soon be heading down again.

At which point, you'll get a load of old timers like Tyler saying "I remember when we could afford to run motorcars. Why, petrol was only £1.20 a litre".

So take this as a warning.

And fill up tomorrow.

Oh, and if you find a candidate who doesn't subscribe to the eco-wibbling idea that fuel taxes should be increased for ever, you might let me know.

Fire Up The Doomsday Machine - Brown Could Still Lie His Way Back

Somebody needs to look at this - fast

If he had the energy, and the sun wasn't shining, Tyler would deconstruct Brown's grossly misleading account of history on BBC R4 Today this morning. 

Like all that stuff about "boom n bust" somehow only being the government's fault if it's accompanied by inflation - LIKE WHAT IT WAS UNDER THE EVIL TORIES - and how he's cut income tax (overlooking the fact that the basic rate of tax is only one element of the calculation - you also need to take into account the real value of allowances and rate bands, not to mention his increase in National Insurance contribution rates). 

But meh... Tyler needs to get out into the sunshine.

So let's content ourselves with the latest sighting of the Doomsday Machine.

As BOM readers will recall, the D Machine is a four-wheel drive beast that can do 0-£5 trillion in well under a decade. At its heart is a turbocharged debt interest payment accelerator that works like this: the government spends far too much money and starts running a big deficit; debt builds up and interest costs start to rise; government revenues fail to keep pace, and there has to be more borrowing just to pay the debt interest; lenders take fright and raise their interest rates; the economy slows further, government revenues sag, there has to be even more borrowing to pay the interest costs, interest rates rise again, the economy sags some more, there has to be more borrowing to pay more interest; and the pressure goes on building up, right up to the moment when the turbocharger explodes, at which point the D Machine is engulfed in a fireball of hyper-inflation.

It couldn't happen here?

The Bank for International Settlements disagrees. In a recent paper on the international outlook for public debt, they point to the UK as being the worst placed of any major economy.

On current policies, they project that by 2040 government debt interest payments in the UK will have ballooned from their current level  under 3% of GDP up to nearly 30% - worse than any other country. The following chart shows public sector debt interest payments as a percent of GDP:

Or to put it another way, by 2040 the average family would be paying (in today's money) over £10 grand every year just to pay the government's debt interest bill.

And by 2040, the BIS estimates that our official public sector debt (ie excluding Enron items like public sector pensions) will be a staggering 550% of GDP (dotted red line):

Of course, this can't happen. Our credit will have been cut off long before we get to debt at that level. By then, we'll either living in a hyper-inflation bartar economy like Zim, or we'll have somehow somewhere found a bunch of politicos with the cojones to cut spending seriously.