Off topic. The Cost of fuel, market forces and being green

Part of my salary package working at Microsoft UK is a company car, for which Microsoft buys the fuel. I can opt out of this scheme and take money instead (which is taxed like any other Salary payment) and the Tax office also works out the notional value of the car and fuel (both are based on the C02 emissions of the car)- the critical thing is that this doesn’t change with the amount of fuel I use, or the price of fuel. In effect the cost of fuel to me is fixed however many miles I do; which gives me a financial incentive to use the car rather than greener forms of transport. It also takes away any financial incentive I have to work from home and when I do it is based on productivity and work/life balance (if anything is going to hinder my getting the job done, better that it’s my son asking what I’m doing on the computer than the hubbub in our hotdesk pens)

Last night on the way home I stood idly calculating the price of fuel per (imperial) Gallon, we’ve been buying fuel in litres in the Britain for 20 years now but we still think of fuel consumption in miles per gallon, like my grandmother converting prices into Shillings to the day she died (10 years after currency went decimal) we still go back to pricing in Gallons. The little display on the pump last night said 132.9 pence per litre; as the displays ticked round to  64 litres and £85, I tried to multiply 132.9 by 4.54 to get price per Gallon. "Call it 4/3 x 4.5 … thats £6 a gallon !"… " now without the rounding is that just over or just under ?" Queuing to pay I got my phone out and used the calculator £6.03. For readers in the US, your gallons (and pints) are 20% smaller than ours,and with the pound at $1.97 that makes UK diesel abut $9.50 per US Gallon (Petrol/Gasoline is about 10% cheaper)

For the at least the last 10 years, governments have been raising the cost of fuel above the rate of inflation to try to encourage us to use less of it. (I don’t want to get into party politics here, I think the Conservatives started it and Labour thought it was a good idea and continued the policy). There are now differential rates of Vehicle Excise Duty on based on emissions. Those who think of their fuel in gallons remember when this flat rate tax was called the "Road-Fund licence" but for years governments have been using fuel and VED as a way of raising money to pay for anything but roads. I’ve heard politicians from all the main parties arguing for huge rates of VED for the most polluting cars. Since I have a "clean-diesel" which does about 50 Miles to the Gallon it doesn’t affect me, and in any event as a company car driver I’m insulated from rates of VED, so I have no particular interest to turn me against such a plan. But  like calling for extra taxes on "The rich", it’s easy politically: if you hit people at one extreme you don’t hit the other 95% of people who might vote for you. It doesn’t take a mathematical genius to see that someone whose car only does 20 Miles per gallon but only drives 40 Miles a week, uses less fuel than someone whose car does 50 to the Gallon but drives 400. Should they pay tax on fuel used or on their vehicle’s potential to pollute ? Increasing the cost of owning an inefficient car might result in some of them being scrapped early – which takes money out of the economy, and results in more demand to manufacture new cars – a process which also uses a lot of energy.  Logic would say scrap VED entirely and raise the same amount of tax from extra fuel duty. Those who use less fuel than average would be better off, those who use more would be worse off. The whole government bureaucracy dealing with VED could be scrapped (saving more money) and the VED tax disk could be replaced with something issued the car’s insurers to show it’s paperwork was all in order.  The political problem with such a policy is that everybody sees their fuel price go up and has to pay more every week, reminding them the government has done something unpleasant.

The key, of course, is to find ways to make fewer journeys. and to use more efficient forms of transport for the ones we do make. As someone wrote
"Here in my Car,
I feel Safest of all,
I can lock all  my doors,
it’s the only way to live,
In cars"

Of course he it might not have scanned so well to say "I can pick my nose" , "I can shout at the radio" , "I can listen to music without headphones" , "I can set the temperature to what I want" etc. Some of us might be priced out of our cars and into using car-shares or public transport. But if we didn’t all go to the office every day, the office could be smaller and the saved Journeys would save money, time and pollution. Think of that next time you curse the traffic or the cost of filling up.

Comments (3)

  1. Anonymous says:

    Trivia Gary Numan sang the song

  2. Anonymous says:

    Mark, I agree.

    I have a bus which goes past my house but it is so infrequent that I can’t rely on it to get to the Station. I recently stayed in Tenby and parked my car in the station car park for a week for £10. My local station car park used it used to be free (so did the park and ride car parks in Oxford), but it’s full at £5 per day ! Unless the bus is attractive enough for people to leave their cars at home (bus – attractive ? HA HA HA )the only way to keep demand for car parking spaces within capacity is to charge like this.

    Rail fares are similarly expensive from my station into London.

    From a pure economics point of view the supply of public transport has declined as people have become more affluent. People like the insulation that a car brings. I bet your bus company would still operate that route if there were enough passengers and mine would run a service frequent enough to be useful … they’re in it to make money after all.

    Many rail lines into London seem to operating at capacity at peak times and so fares have been set to keep people off the trains, not encourage them on. Only a step change in capacity can lower ticket prices. That would mean many more people on the trains , using more capacity, more cheaply.

    Since I tend to be of a free-market disposition, I don’t like seeing taxes spent to distort the market: there is no case for subsidizing those who work in the capital – however, I don’t think either of us are saying that. Right now fuel prices should be pushing people to use more fuel efficient kinds of transport; which don’t have the capacity to take them  and can’t add it. So there is a case for spending tax on public transport provided it is increase capacity.

    As for internal flights if it is a choice between filling seats on a flight and extra car journeys – then flying is greener. Again a step change is required which reduces the number of planes flying, not the number of people on each.

    What’s interesting from an economics point of view is that a price point has emerged for more plane-seats sold at a lower price and the capacity has been added – which hasn’t happened for trains.

  3. Mark Wilson says:

    I really wish that I could use my car less – I have a very similar scheme to you (company car, fuel card – tax bill is the same whether I do 25,000 miles a year or 50,000) but then I look at public transport.

    I live in a small market town about 60 miles north of London.  One of the local bus companies stopped running through our town as it added 4 miles to their journey.  So we lost an hourly bus service to two of the major towns nearby.  We still have an hourly service to another major town, but it takes 45 minutes to go 12 miles (around many housing estates) and is not inexpensive either.

    Once I reach the station, I’d looking at almost 40 quid for a return train to London (peak) – and if I drive instead of taking the bus, it’s £7 to park for a day.

    When we stay at my brother-in-law’s place in Bristol we use the bus for local journeys.  It’s the same with friends in Manchester (insert name of big city of your choice) but for those of us who live in provincial Britain, public transport is too costly, or sometimes just takes too long (public transport for the 90 mile journey from me to Microsoft’s offices in Reading would take about 4 hours each way and cost a fortune).

    But it’s not car travel that gets me.  It’s domestic flights.  Why get a flight from London to Manchester when the train will do the same journey in about the same time (city centre to city centre, taking into account check-in times)?  It’s the same for short haul in Europe – like London to Paris.

    Make the "low-cost" airlines pay for their environmental cost and we’ll see that they are not low cost at all.

    And as for road pricing – scrap VED as it’s irrelevant – we all pay a tax based on a combination of the miles we drive and how efficient our car is.  It’s called fuel duty.  And it should be used to fund both improved public transport and road repairs (which are falling behind at a rapid rate – I actually had to swerve to avoid a pothole on the M1 today!).  Which gets me back on topic – $9.50 a gallon.  What exactly are our friends in US complaining about when theirs less than half that [source:]?