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There is a case for raising the tax on fuel

IT was one of these annoying, nasty little landmarks.

An old friend told me she had just filled her car's tank and for the first time it had cost her more than £50. Her car is a modest 1.4 litre vehicle that is eight years old. It is not particularly green, but it certainly isn't a fuel guzzler.

Yet, just like millions of other people – not to mention struggling businesses – across the UK, she is suffering from the consequences of fuel price inflation.

This is the biggest single dilemma George Osborne will face in his forthcoming Budget. It is probably true that the easiest way he can stimulate growth is by cutting fuel duty right now – or at least deferring the 3p rise which is scheduled for August.

Of my friend's £50, a remarkable £30 (in VAT and fuel tax) went straight to the Government. That seems unfair, and in a sense it is. Individuals and businesses in Britain pay more tax on their fuel than any other people in Europe. In second place are the Italians, and this car-crazy nation is not happy as their petrol gets more and more expensive. The French and Germans pay considerably less, though ironically, like the Italians, they have better roads, in terms of design and maintenance, than we have.

Mr Osborne will have many contentious decisions to make. My own belief is that if he is able to be generous to anyone, it should be to lower-income families. He should raise personal allowances in order to take as many of them as possible out of income tax obligations altogether. But the argument for reducing fuel tax remains powerful, and it is articulated by some of most the forceful lobbyists around.

There is also a case for actually increasing the tax on fuel rather than reducing it. In the very short term, the supply price may actually go down a little as the world recovery stutters. Secondly, major UK suppliers of petrol to ordinary consumers, like the big supermarkets, will be quite relaxed about engaging in forecourt price wars which may for a time reduce the price of petrol considerably. Then there is the overall green case, which has cogency and which is presumably being prosecuted hard by the Mr Osborne's Coaltion partners, the Liberal Democrats.

There is a political argument for reducing our dependency on oil. After a short-term blip, world demand for oil will probably spiral ever upwards over the next 20 years at the exact time when security of supply is getting ever more problematic.

We should all be preparing psychologically for the time, sooner rather than later, when oil supply is far less certain. The Scottish Government, to be fair, seems well aware of this.

Over the past decade, global oil consumption has grown by around 15%. Yet most of the world's major oilfields are now well past peak production. Meanwhile, when the Iranians threaten to block the Straits of Hormuz – through which so much oil passes in colossal shipments – they are not indulging in empty bluster. If any military action is taken against Iran in retaliation, the situation would get even worse. A catastrophic global oil supply crisis is looming.

Even worse, from our point of view, is that the world's emerging countries have huge expectations and they reckon, understandably, that they should get much more of the world's oil. They will certainly need it, as their economies grow and grow. Some of these countries will enjoy increasing and well-merited global influence and a few of them are showing considerable contempt for western European states which they see as mired in welfarism, idleness and general self- indulgence.

Anyway, should so much of the precious oil just be going into people's tanks? It is also needed for plastic, for fertilisers, for pharmaceuticals and for generating electricity. It could be argued, though this is controversial, that these are potentially all better uses than being poured straight into internal combustion engines.

One thing is assured: Whatever Mr Osborne does, he will infuriate many.

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