Leaders: Fuel duty move a logical step to encourage growth

Published on 27/06/2012 00:00

CHEERING news from the Treasury is a rare event these days, so it was a bit of a fillip to hear that George Osborne has decided to postpone a planned 3p increase in fuel duty from August to January next year.

Coupled with falling oil prices – benchmark Brent crude has come down over the last month from $107 per barrel to just over $90 per barrel – it should mean falling transport costs in the short-term.

But don’t break out the champagne just yet. The reasons behind these apparently good things are unremittingly bad, as Sir Mervyn King, governor of the Bank of England, told MPs yesterday. He was pessimistic about the economic outlook for the rest of the year and said he had been struck by just how rapidly things had changed for the worse in the last six weeks.

And not all of this is because of the nearby eurozone sovereign debt crisis – on which, Sir Mervyn confessed he had “no idea” of how it would turn out.

Worrying though that is, he seems to be just as concerned by the fact that emerging market economies, such as China and India, which have held up world economic growth during and since the developed world recession, are now slowing down with alarming rapidity.

This dismal backdrop is why government tax receipts are lower than expected and why the Chancellor has decided that the country cannot afford a tax increase in August. Given this, can he and the governor do more to ward off what looks like another and probably deeper downturn than the most recent one?

Sir Mervyn has indicated that he does not rule out a further reduction in interest rates, though it is difficult to believe that squeezing them below today’s historically low rate of 0.5 per cent will have much effect. And another round of quantitative easing (QE) – pumping more cash into the economy by, in effect, printing it – now looks certain to be authorised in July. But economists still argue ferociously about whether the monetary easing has actually stimulated anything beyond assisting bank balance sheets.

Since the UK economy now seems much more likely to suffer from external shocks than to receive any stimulus from outside, the policy emphasis must surely now be on what further domestic action can be taken.

Mr Osborne’s fuel duty cut is, in effect, an admission that the economy is too weak to absorb the reduction in demand that the tax increase would occasion. Although it means government borrowing has to rise more than was planned, the markets do not seem to be penalising him for it – quite the reverse, for the markets now seem to recognise that encouraging growth is as important as imposing austerity.

With stimulating domestic demand the only tool available to the government, Mr Osborne should follow his fuel duty cut logic and ask himself whether he should be deploying targeted tax cuts and increased infrastructure spending.

Two sides to A9 dualling story

A START to completing the dualling of the A9 between Perth and Inverness is to be made in 2015, two years earlier than previously announced. Welcome though this earlier commencement to improving one of Scotland’s most dangerous roads is, it still means that dualling of the 80 miles of single carriageway along the road’s 113-mile length will not be completed until 2025.

Indeed, the announcement yesterday by Alex Neil, infrastructure secretary, looks suspiciously like crowd-pleasing gesture- construction than any real advancement of the timetable. It also involves dualling three miles of road at Kincraig where a scheme to add an overtaking lane was already being planned.

Whether this will reduce the road’s accident and death toll is questionable. One argument is that as lines of motorists are reduced to crawling queues behind lorries, buses, and caravans, driver frustration and risk-taking manoeuvring increases. If this is correct, this little section of dualled road should reduce that problem.

Another argument says constant switching between dualled and single carriageway confuses drivers who can think they are safe to overtake when in fact they are on single carriageway and liable to hit oncoming vehicles.

So it can be equally argued that adding an eighth separate section of dualled road with seven lengths of intervening single carriageway between may increase, rather than reduce accidents.

If so, Mr Neil would have been better advised to pull the money from the Kincraig improvement and use it to accelerate the dualling of the single carriageway links, starting with the most heavily-used section of the road: north of Perth, between Luncarty and the Pass of Birnam.