In the last month UK petrol prices have hit record levels. In July unleaded petrol passed the £4 a gallon barrier for the first time ever and now costs an average of 88p per litre. The immediate cause of these rises is events in the Middle East that have reduced the supply of crude oil, leading to a price rise at pumps. But the exorbitant cost of petrol and of motoring generally is a result of the size of the tax burden levied by government on car users.
Comparing prices at British pumps with those in other countries illustrates the point. In the United States that 88p litre of unleaded costs the equivalent of only 35p. In Estonia it will set you back a mere 53p, in Greece 64p and in Luxembourg only 73p.
This is because of an 88p litre of petrol in the UK, only 22p is the actual cost of production and profit for the supplier. A whopping 51p is fuel duty levied by the government and a further 15p is VAT. In other words, if petrol was tax exempt, a litre of unleaded would cost only 22p.
This is not the only tax levied specifically on motorists. They are also required to pay between £75 and £170 per year road tax, plus of course VAT at 17.5% when they purchase a vehicle in the first place.
It should come as no surprise to learn that, according to figures compiled by the transport pressure group Transport-Watch, after taking into account government expenditure on the road network, road users presently give the Treasury net receipts of £30 billion per year.
In other words, motorists are helping to fund a huge array of government expenditure via fuel duty, road tax and VAT on petrol.
Such expenditure may be necessary and worthwhile, but is it fair that one group of individuals should shoulder such a disproportionate share of the burden just because they happen to drive cars? In particular, those who live in rural areas may have little choice but to use their cars for the great majority of their journeys but are financially penalised by the government for so doing.
Comparison of the governments attitudes to roads and railways may further illustrate the raw deal received by motorists. While road users presently pay the Treasury £30bn per year net, the rail network receives an annual subsidy of approximately £2 billion. In other words, train journeys are relatively cheap because money is taken from road users to (effectively) reduce ticket prices.
Such cross-subsidisation may be thought desirable because rail travel is more environmentally friendly than road. But, in fact, according to Transport-Watch figures, railways return an average of 115 passenger miles per gallon of fuel used, whereas a small diesel powered car containing two people may return 120 passenger miles per gallon and a coach carrying twenty people may achieve 200 passenger miles per gallon.
While fuel consumption may not be the only environmental issue that should be taken into account, there is not a compelling case for the subsidy of railways by roads on the grounds of fuel consumption alone.
If a fairer deal for motorists is to be achieved, then there are three possible solutions that the government should explore.
First, Gordon Brown should abolish fuel duty, road tax and VAT on fuel and instead create a system of road pricing that would reflect levels of congestion and pollution on different roads in different parts of the country. It should cost more to drive along a crowded, polluted motorway than along an empty, unpolluted rural road. The money raised through a national system of road pricing could be used to maintain and upgrade the road network.
Second, the government should end the present level of subsidies to railways. This may mean that some railways in rural areas would close, but this may not be a bad thing. In some isolated areas it would be cheaper to give rail users a personal taxi service than to keep the railways open for them. Where this is the case, this is what should be done.
Third, the Chancellor should seek to reduce the overall tax burden. At present, government takes about half of what people earn and spends it on their behalf. Its time government started to treat people like adults and allow them to spend their own money as they see fit. When people spend their own cash they tend to get better value for money and encourage greater competition that reduce costs and raises standards.
The high price of petrol is indicative of the failure of government intervention in the transport system that has created a situation where one large group of people (motorists) subsidise a much smaller group