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Can the Price of $9 per Gallon of Gas be Stabilized?

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This is my first post since I arrived back from having my baby (a beautiful girl who, with four brothers, is going to be well taken care of).  I am combating a strong urge to write about maternity leave legislation in the UK (it is very generous), but instead have decided to write about something a little more timely: the rising price of gas (or petrol as we like to call it in the UK).

Increasing prices are not only being seen just at the pumps across the nation, but around the world.  When I moved to the U.S. I quickly learned the only conversation to have with someone in the UK regarding the price of gas is one in which sympathy is expressed for the high prices there (I call it British rule #7).  Whilst the gas prices here in the U.S. rise upwards to US$4 a gallon for unleaded gas, prices in the UK are rapidly pushing towards US$9 per gallon.  In fact, prices hit a record average high on  March 23rd of £1.33 per liter for unleaded gas (approximately US$2.15 a liter or US$8.12 per gallon).  Many consumers are paying well over £1.40 a liter (approximately US$2.27 a liter or US$8.57 per gallon).  The real world cost of this was explained to me recently when I broke British rule #7 and I was informed (solely for comparative purposes, I’m sure) that when my brother last filled up his diesel car it cost him over £100 (approximately US$165).  Ouch.

There are many reasons for these high prices – one of which is due to taxes that, combined with other transportation taxes, amount to ten percent of the total UK tax revenue.   The rate of tax on gas (known as fuel duty in the UK) is currently 59p per liter (approximately US$0.95 a liter or US$3.59 per gallon).  The taxes on gas also fuel (and I must apologize for a completely intended, although bad, pun) the government’s fiscal and transport policy.  To replace the revenue from these taxes would require an increase to income tax by 12 pence per British pound (approximately US$0.20).  In fact increasing or decreasing the fuel duty by just 1p (0.7 cents) can increase or decrease revenue by £500 million (approximately US$815 million).

The fuel duty combined with rising oil prices has a significant impact on the cost paid by the user at the pump in the UK.  To help offset the cost to the consumer of increases in the price of oil, the government announced on March 23rd during the annual Budget that it is going to introduce a ‘Fair Fuel Stabilizer’ from April 1st of this year.  The aim of the Stabilizer is to “support motorists when the cost of living is rising, by reducing fuel duty when oil prices rise (and vice versa)” – essentially dropping the level of the fuel tax when prices of gas rise and increasing it when prices drop.

A little good news passed to the British people during the budget is that the introduction of the Stabilizer has been paired with a 1p drop in the price of fuel duty.  It seems like a fairly clever idea, but the wider ramifications remain to be seen.  A government report investigating the effects of introducing the Stabilizer show that there  some fairly complex economic factors at work in implementing it.

With these rocketing prices I am not excited at all to see the digits spinning on the pump when I fill up my car on an upcoming trip to England (and sadly, no, it is not to attend the Royal Wedding – I believe my invitation got lost in the mail).

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