John McTernan: Fuel duty spat foreshadows war over cost of living

THE skirmishing between John Swinney and Danny Alexander over a fuel duty regulator is the beginning of a bigger battle that will overshadow politics this year - the cost of living.

In itself the fuel duty regulator is a classic example of an idea that is simple, easy and wrong. The basic proposition is that if fuel prices rise, so does duty and therefore the government's tax take. Since Treasury projections were based on an assumption about price levels, this extra money, so the argument goes, is a windfall and that should be shared with motorists. Deceptively simple, simply wrong.

Fuel is itself a substantial cost to government - if it rises in price so do the costs of public services. Not forgetting that its contribution to inflation feeds through to index-linked costs. And then there's what happens when prices fall - the proposed regulator would dampen the fall just as it dampens the increase. Which would not be such an easy sell were it to happen.

All of which is why Danny Alexander dismissed it last year as a "con". That, however, is precisely what he's now looking into. In his own words: "The proposal that we are considering is the one that was being put forward in the past, which is the idea of the fair-fuel stabiliser, so that there's some sense that when prices rise the burden is shared."

What a difference ten months and a ministerial car make. Danny Alexander has to be seen to be doing something because governments feel they have to be seen to be doing something about this particular price rise.

What's the difference between what Danny's doing and Shirley Williams and Roy Hattersley were trying to do in the 1970s when they ran a prices and incomes policy for the Labour government? The Chief Secretary would claim there's a world of difference - the coalition are free marketeers, but this is a special case affecting remote rural communities. Yet that's not really true. An honest minister would say that with the glories of a remote rural lifestyle - the beauty of the scenery, the physical isolation, the solitude - come real costs. Oddly enough, if you live far away from most other people it costs more to get stuff to you, and you are charged for that. If you want city prices live in a city and share the commute and the rat-race.

Of course, it's a vested interest the government are scared of - motorists, or more precisely the motoring lobby, the petrol heads intent on ensuring that oil which took millions of years to create doesn't see out the century.

In a very real way, what the coalition are doing does have something in common with the 1970s. Inflation is coming back and gaining political salience. There are a cluster of reasons for this.The fall in the value of the pound, which is boosting exports, is also increasing the cost of imports. The cost of Chinese goods is rising as wages there increase, thanks to the ruling Communist Party's support for both wage increases and trade union organisations as routes to increasing workers' well-being. There's also a worldwide rise in the costs of raw materials from iron ore to oil. This is driven by the continuing growth in China, Brazil, India and the Far East generally. And food prices are also on the rise. A growing middle class in the newly industrialised countries want a diet that reflects their hard-won wealth.

All these are factors which, by and large, are out of the control of the UK government. But that's not the point. I've seen some bad government lines to take in my career, but I cannot imagine any press team, however gormless, offering a minister a line that starts: "Of course, it's China's fault, and we can do nothing about it." Government's sense of self and indeed self-importance cannot let it do this, though it would be an honest and truthful approach, which would probably avoid tears before bedtime. No, ministers rush out with plans or, more properly, "studies". All in the hope that the appearance of action is as good as doing something, and that the problem will go away if prices fall.

But inflation won't go away. The Bank of England Monetary Policy Committee is signalling an intent to raise interest rates to try to squeeze inflation out of the system. This will raise mortgages and squeeze the middle further - and all of this comes on top of a VAT increase. This is the soft underbelly of the coalition. Governments can't shirk responsibility for prices rising - without a very difficult conversation with voters about impotence. Worse, they can't blame the previous government either.

"I'm very sorry, ma'am, but it's all Gordon Brown's fault" rings hollow. The price rises are here and now, not 18 months ago. For an opposition this is an issue that is cheap, obvious and populist. It goes straight to the pocketbook, which, ultimately, drives electoral sentiment. And all you have to do is make the accusation that the government aren't doing enough.

I well remember in the 1990s when I ran the Labour Party's Petrol Price Monitoring Unit. There's still some archive footage of me at Walworth Road taking a file of clippings from a shelf and typing figures into a computer database. That was it. Me, a PC and some press cuttings. And the unit lasted just as long as it took the cameras from the BBC to film me. When they were gone, so was the unit. But the point was made - this out-of-touch government are doing nothing.

If Ed Miliband has any sense he will latch on to this issue and bash the coalition. The government are powerless to do anything substantial about this - the global trends, the taxation and even the policy settings are fixed for this year.It is noteworthy that Chris Huhne is reluctant to join the call for cuts in fuel duty. As Ed well knows, the UK's commitment to tackle climate change is driving energy prices up. The coalition will say that any focus on inflation by Miliband would be irresponsible and opportunistic. He will retort - and your point is? The discipline of government is hard, just sometimes opposing is the easier and more satisfying path.