The big headlines were predictable on the budget. Most people would welcome the increase in personal allowances. It is a shame Labour were not so forthcoming on allowing the population to keep the money it earns rather than having to ask for it back.
The windfall tax on oil companies will also be welcomed by many.
But the BIG headline was the 1p cut in the tax on fuel. This was widely welcomed by the public, however the reality is that this is a giant drop in an ocean of tax on the motorist at a time when the fuel price will continue to rise.
As the price of fuel is composed of 61% tax, a 1p reduction will hardly dent the overall tax take. At the very time when George Osborne was announcing this tax cut the petrol retailers were putting up prices by more than the 1 penny reduction.
In addition, the chancellor announced that the government will be stepping off the fuel escalator. The truth behind this mechanism was out along time ago – nothing to do with environmental concerns but everything to do with raising revenue. This can be seen in the changing behaviour of the motorist when we get large hikes in petrol prices.
Another sting in the tail of the budget on motorists and the supply chain is the windfall tax which some are arguing will ensure the oil companies will pass on the rise to the consumer in one way or another. This has been stiffly denied by the government, but it in effect they cannot stop the oil companies doing this if they decide to.
What IS substantial is the government not putting up tax by the 5 pence that they were going to put on fuel in a few months time. This has not had quite so much publicity, but will not register with the public as it is hard to register a tax decrease before the increase has arrived.
What all this really shows is that the fundamental problem for the economy over time is our susceptibility to oil prices. This has always been the case, however, we are quickly approaching peak oil with the increase in demand from developing countries. Add this to the instability of the oil producing regions in the world and our fragility is clear.
Zac Goldsmith was a lone voice yesterday in voicing murmurings of discontent over the governments environment policy, but the government can easily ignore this when we have policy made compartmentally rather than based on a holistic approach.
Our policies on the economic; peak oil; environment and our foreign policy are all linked. Our hypocrisy with our foreign policy is all tied up with our dependency on oil and our economic growth strategy (such as it is).
Labour’s response to the budget has been lacklustre. Although Ed Miliband gave his second good performance in the House of Commons in 3 days, there is little of an alternative shown by the opposition. They are right to criticise the government over the vat rise on fuel, but as yet there is no overall economic strategy that can rival the coalition.
Trouble and strife will continue through the next 12 months as oil shocks continue to knock George Osborne’s targets off course. We live in interesting times.