Real Inflation 9.5 %

Mr_Mumble

Sir_Humphrey wrote: »

Cutting fuel duty would increase demand for petrol, pushing up it's market value, negating the effect of the cut.

Demand for petrol is relatively inelastic. Competition would make sure the vast majority of a fuel tax cut would make its way into consumers pockets.

In effect, it would be a tax break for oil companies (fuel has inelastic supply).

It costs $500,000 per day to lease an offshore oil rig. Upstream supply is very elastic.

Paul Krugman explains this better here:

http://krugman.blogs.nytimes.com/2008/04/29/gas-tax-follies/

This blog post is specifically talking about the McCain/Clinton plan for a one-off gas tax holiday. Short-term downstream supply is inelastic but is irrelevant when talking about a permanent tax cut.

Sir_Humphrey

Mr_Mumble wrote: »

Demand for petrol is relatively inelastic. Competition would make sure the vast majority of a fuel tax cut would make its way into consumers pockets.

It depends on the user. It is true that hauliers have inelastic demand, but for normal drivers, they can travel less, use public transport, get rid of their car, or trade down to a more fuel efficient model. That may explain why the price hike is affecting diesel the most.

Personally, I have little sympathy for road hauliers. The road tax system works as a massive hidden subsidy for lorries (they cause virtually all the wear and tear on the road network). If car road tax were kept the same, and lorries each paid proportionally more for the damage they caused, the annual road tax bill for heavy lorries would run into 7 figures.

If some road hauliers go bust, it will be a case of them not having viable businesses, despite a huge subsidy. Road Haulage firms tend to claim to support free markets (despite thier subsidy), so they have little moral justification to complain.

For Joe Public, a tax reduction would see them spend more on petrol, and push up the market price of oil. The petrol stations would then put up prices again owing to renewed shortage of supply.

Mr_Mumble wrote: »

It costs $500,000 per day to lease an offshore oil rig. Upstream supply is very elastic.

This blog post is specifically talking about the McCain/Clinton plan for a one-off gas tax holiday. Short-term downstream supply is inelastic but is irrelevant when talking about a permanent tax cut.

Since we are talking about a spike in the price of oil, the argument for a tax cut is about providing instant relief. Therefore, the short term supply elasticity is a relevant one here. I agree that long term oil supply is more elastic, but it is a good policy to reduce the usage of oil. Remember that such policies reduce demand for oil, (petrol is much cheaper in the US, but they have more gas-guzzlers so do not reap the benefit).

As for the upstream elasticity. They could quickly reduce supply that way, but the political wrath they would reap makes that impossible in practise. They could only do so as a cartel, which is illegal in the UK.

A final point. The industry being creamed the most by the oil price is the aviation industry, which pays no fuel duty at all.

Lotus-eater

We need lorries on the road, therefore we will always have them, no matter what the cost. If something else comes along thats better/faster/cheaper, then lorries will go the way of canal boats and be off the road.
I have sympathy for road hauliers, but I don't really you see I have sympathy for the small businesses road hauliers. You don't see the like of Eddie campaigning for cheaper fuel with all the other drivers do you? No, because he knows he can take over their work if they go out of business.
All we are seeing is a change from small businesses to larger ones, its happened in many other areas, mine included.

Sir_Humphrey

Lotus-eater wrote: »

We need lorries on the road, therefore we will always have them, no matter what the cost. If something else comes along thats better/faster/cheaper, then lorries will go the way of canal boats and be off the road.

Of course, I was not suggesting they pay millions a year in road tax. However, if they paid a greater proportion, other modes might become more viable. Other modes have a greater share in other European countries which carry more freight by rail.

You are probably right about consolidation. I read somewhere Eddie Stobart is diversifying into rail BTW.

posh*spice

http://www.bloomberg.com/apps/news?pid=20601080&sid=a3NMcrcSDpD8&refer=asia
The Chinese are putting up their energy and fuel prices. Here comes more inflation...

fc123

Lotus-eater wrote: »

All we are seeing is a change from small businesses to larger ones, its happened in many other areas, mine included.

What's your sector...just out of interest (in a non stalking/internet psycho kind of way) as the big fish gobbling up the small is accelerating really quickly now.