Last we heard, the government was considering what it should, and could, do to suppress
rising fuel prices. I wonder whether they have now pencilled something into March’s Red Book. You see, after a swell of speculative fear triggered by events in the Middle East, the cost of oil is
going up, up, up. Brent Crude touched $120 a barrel yesterday, the highest price since August 2008, although it eventually settled to around $111. Some observers predict it will soon exceed the
previous record price of $150.
Naturally, this threatens to unstitch the delicate fabric of the global economy – drastically rising oil prices could bring pervasive stagflation in their wake. But there are also more
parochial concerns, not least what all this means for motorists. Already, the rising cost of oil is seeping into the prices that people pay at the petrol pumps. Here’s what the graph looks like for
unleaded fuel, for instance:
The potential political ramifications are clear. Many veterans of the Blair years identify the fuel protests as the moment when it started to turn sour for New Labour. And there is some striking
– albeit circumstantial and inconclusive – polling
evidence about rising fuel prices and waning support for the government. Which is why George Osborne will no doubt take particular interest in these matters as the Budget approaches.
The problem for the Chancellor is, as always, cost. Simply postponing the 1p rise in fuel duty planned by Alistair Darling would deprive the Treasury of around £500 million a year. A more
involved fuel duty stabiliser could mean £billions on top of that, as the government constantly adjusts fuel duty to counteract rising oil prices. In other words, action on fuel might require
spending cuts elsewhere. Or perhaps Osborne could dip into that unexpected windfall that he
received in January.