Tax is the real scandal

IN France, bloody-minded demonstrators believe that if they cause enough disruption, their government will eventually cave in to them. The British have a deeper faith in the democractic process, but occasional outbursts of disorder at least offer therapeutic benefits to demonstrators and draw publicity to their cause.

In the present surge of anger over fuel prices, however, it is worth asking where protesters are best advised to direct their efforts. It makes no sense, for example, to blockade a Shell refinery and disrupt supplies to petrol stations across the country.

Oil companies such as Shell are not responsible for the fact that the price of a barrel of oil on world markets has tripled in 18 months - except to the limited extent that, in the depressed mid-1990s, they failed to foresee a boom in demand and so failed to build the extra refinery capacity now needed to increase world supply of refined products.

Nor - though they are never slow to slip in a price increase when the oil market gives them an excuse - are they responsible for the hugely inflated price of a litre of petrol at their pumps, three-quarters of which consists of excise duty and VAT.

In recent days, however, attention has been deflected from the long-running debate over the excessive tax take: now the concern is that a continuing rise in the oil price, from today's $33 a barrel up towards $40 or $50, will tip the world into recession, just as the "oil shocks" of 1973, 1979 and the Gulf War did. With this in mind, demonstrators may be tempted to picket the embassies of Opec countries, starting with Saudi Arabia as the most powerful member.

Again, however, it would be a pointless gesture. Opec is a cartel which prevents any kind of free market in crude oil supply, and its members are profiting to a astonishing degree from the current price surge - they will collect $250 billion in oil revenues this year, compared to $116 billion in 1998.

But Opec's slow and often undisciplined mechanisms are still preferable to the anarchy that might otherwise prevail, given the volatility of many oil-producing countries. Opec production levels were low at the beginning of the current boom, partly because of American pressure to keep them low to protect the US oil industry.

A third production increase this year was due to be agreed today, but its effect will be slow to make an impact because of lack of refinery capacity and low fuel stocks in the West. Nervous oil traders in New York and London (another possible target for demonstrators) may continue to drive the crude price upwards in the short term. For that, we cannot blame the sheikhs of Opec.

And we should try to keep a sense of proportion. In real terms - stripping out inflation - today's oil is still one-third cheaper than it was in 1990, and half its 1981 price. The developed economies are far more efficient in use of energy than they were a generation ago. There is almost no inflation in the prices of non-oil goods and commodities, and many prices are falling.

These factors mean that we are still a long way from an "oil shock" comparable with previous ones. Yet consumers feel the pain, and want somewhere to demonstrate. The simple answer is that they should picket the Chancellor of the Exchequer, Gordon Brown, because at bottom this is still an argument not about global oil supply but about the outrageous amount of tax levied on fuel.

Modern governments of all shades have learned that direct taxes on income have to be kept low in order to win elections, and have to be replaced by indirect taxes, such as excise duty and VAT, which are easier to defend on the grounds that the consumer has the choice of not spending on goods which carry them. But fuel and heating are not indulgences like liquor and tobacco.

They are essentials, and the people most dependent on them - farmers, small businessmen, working mothers, homebound pensioners - are often among the least well off. The punitive tax on fuel is disgracefully unfair and every minister knows it, but it is also a source of #30 billion of easily collected revenue, so there is no political will to do anything about it.

Even now, when the VAT take has gone up in line with the increase in the underlying fuel price - so that more revenue is being collected than was actually budgeted for - there is no suggestion of a corresponding cut in excise duty. For the Tories - terrified of being accused of wanting to cut public expenditure- Archie Norman would only talk vaguely yesterday about using extra VAT revenue to "mitigate the effects on those who are worst affected".

But that's not good enough: this is not an oil crisis, but it is a tax scandal. The Government should admit it and the Opposition should hound them. So if people really want to demonstrate, let's have a blockade of HM Treasury and a detachment on the steps of Conservative Central Office.

http://www.telegraph.co.uk/et?ac=000118613908976&rtmo=aq5CdWhJ&atmo=tttttttd&P4_from_link=ixnews.html&pg=/Offsite/http://www.dailytelegraph.co.uk:80/dt%3Fac%3D002830376029449%26rtmo%3DlnFnQAot%26atmo%3DHHHH22NL%26pg%3D/00/9/10/dl01.html

-- Martin Thompson (mthom1927@aol.com), September 09, 2000

Answers

Another good piece, warmly received in these quarters, Martin.

-- JackW (jpayne@webtv.net), September 09, 2000.