George Osborne’s idea of a 'fuel duty stabiliser' is an interesting one. (The idea is that as the cost of fuel goes up, the tax goes down and visa versa). Here are a few quick thoughts:
1. It will be popular. People want something done about the environment but are sceptical about the use of green taxes to raise revenues. This proposal draws on the perception that the government is cashing in.
2. It will cost a lot. Osborne argues that the Treasury benefits from an additional £100 million a year for every $1 a barrel rise in the oil price. That may be part of his argument for a change – but it also means a lot of money to make up somewhere else, through less spending or more taxes.
3. Price signals are important. Prices are going up because oil is becoming more scarce. Most people don’t think that is going to change. In this case, price is a good signal to people to adapt their behaviour - and to companies to adapt their business models + products accordingly. In this case, it seems odd to settle on a particular price, set by central government.
4. Social costs are still there, even if the price goes up. The rationale for green taxes comes from the social costs of burning fuel. People should compensate society for polluting the environment. Or change their behaviour. That rationale remains, whatever the price of a barrel of oil.
What does all that mean? I’d say it means the proposal is a clever political move, for now at least. But I’m not sure it’s going to solve the problem. We lay out some alternative ideas in The Politics of Public Behaviour.