Fair Fuel UK? How to make UK fuel duty a little fairer

A nationwide campaign comes to London today, called National Fair Fuel Day, demanding that the UK government act on fuel taxes. Finally, the road transport sector and motoring lobby have cottoned onto the fact that some in the media have ignored – the high price of fuel is substantially due to government taxation. 

Some have argued that it is all about oil company gouging. Oil companies being the bogey of the left and easily pilloried. Yet whilst demand and supply do greatly influence price fluctuations, oil companies can't be blamed for much of the price of fuel in the UK.  It isn't hard to compare prices between countries, and notice that once currency fluctuations are taken into account, most of the real difference is tax.

Today, the average price of standard unleaded petrol in the UK is around £1.38 per litre, for diesel it is £1.45. However of those prices, around £0.58 is fuel duty. For the petrol there is also £0.23 in VAT (£0.24 for diesel) (on top of the retail price and fuel duty). So of the total price, the majority is tax. 

In the UK, this situation came about because of the two previous governments. John Major’s government introduced a fuel duty escalator, which increased fuel duty by inflation + 3%, which was then increased to inflation + 5%. When Gordon Brown became Chancellor of the Exchequer he raised it to inflation + 6%. So in short, it was a way to pillage the pockets of motorists, given that most revenue from fuel duty comes from road use. 

Unlike the US or New Zealand, none of the UK fuel tax is hypothecated for transport purposes. The reason being that the UK Treasury has a phobic opposition to government restricting the use of any tax revenues for any specific purpose. The history behind this being that the last time fuel tax was hypothecated was in the 1930s, and revenue was far in excess of spending on roads (which suggested the tax should have been lowered or more spending should have been made on roads). However, even compared to road spending, the fuel tax is grossly excessive.

About £10 billion is spent in the UK every year on maintaining and upgrading all roads, yet £26 billion is collected in fuel duty and £6 billion from vehicle excise duty. As these taxes wouldn’t be collected if people didn’t own or use motor vehicles, it is fair to link that revenue to that expenditure, although the left/environmental movement likes to think of it differently. 

So what should the rate of fuel duty be? Let’s reject the Treasury approach to this, and say that a dedicated roads fund could be set up which would be funded from revenue from road users. If the current level of spending is maintained it would be £6 billion from vehicle excise duty and £4 billion from fuel , or rather only 12.5% of current fuel duty. Given that there is significant deferred maintenance on road networks (and assuming this funding can replace council tax contributions to road maintenance), let’s boost that slightly by rounding it up to 8p a litre that could be hypothecated for road spending. Yes, in theory fuel duty could be only £0.08 if it was all spent on roads, with vehicle excise duty and it was used to fully fund local roads and given a small boost to maintenance.  Yes, the UK government is profiteering from the use of its own roads on a grand scale, that would make most entrepreneurs blush.  However, it's the government, so the left don't get so worked up about that, because tax is "good" because governments "spend it on everyone".

Of course cutting fuel duty by 50p devastate public finances unless there were equivalent spending cuts to match.  Not something I'm unafraid of at all, but let's proceed down a train of thought to do something a little different.

 A £0.50 cut in fuel duty would also correspond to another £0.10 off in VAT, so a £0.60 cut in fuel would nearly halve prices. That would be a major shot in the arm for the competitiveness of transport intensive industries, transport operators and motorists, but of course would dreadfully upset environmentalists, public transport operators and would increase congestion. Environmentalists would argue it would increase climate change. 

Let me be controversial and assume that this is correct, and accept that road users should pay for the "cost" of carbon emissions. The Stern Report claimed that the cost of climate change is around £0.14 per litre.  However, even if I add that to the road spending, fuel duty still drops by £0.36 with a £0.07 cut in VAT.

Another claim from environmentalists will be the cost of real pollution, the noxious kind that actually does affect people's health in cities. Well that’s been calculated too, and is around half of the cost of infrastructure maintenance, indicating a tax level of around £0.16 per litre. It is a cost that is declining as cleaner burning vehicles are renewing the fleet.  Again, it still means that fuel duty would drop by £0.20 with a £0.04 cut in VAT.

At that point I’d make an argument that there is a long run lack of investment in British highways, only part of which can be recovered in the short term by private investment (simply due to public sector crowd out in planning), so that an extra £0.04 a litre should be retained to be transferred at a rate of £0.01 a litre every year to the roads fund, to address 15 years of underspending.

Indeed, given the rail sector pays a small portion into this, it could be argued that tax could be recycled into paying for rail subsidies (although surely it would be simpler and fairer to enable rail operators to claim back the duty).

So what to do? Yes the government makes a fortune from road users, it collects over three times what it spends on roads. However, it also faces a massive budget deficit to cut, so in the meantime, here are my steps to remedy this, over time:

1. No more increases in fuel duty. 

2. Set up a hypothecated highway fund to which all vehicle excise duty and 8p of fuel duty goes into. Establish an independent board to determine how to allocate those funds to the Highways Agency, local authorities and the Welsh, Scottish and Northern Ireland administrations, based on receiving bids for maintenance and capital expenditure. Have those funds allocated on transparent criteria based on cost/benefit analysis. 

3. Calculate and explicitly state that a proportion of fuel duty is to reflect climate change and pollution costs, if that is deemed necessary.  Regularly recalculate these to reflect changes in the vehicle fleet.

4. Explicitly identify the remainder of fuel duty as “surplus”, with the aim of policy to reduce that downwards by 1p a litre every year until the budget is in surplus (estimated 2016/2017), with another 1p shifted into the roads fund for additional capital works. 

5. Once the budget is in surplus, cut fuel duty by the remainder, so that all that remains is the road fund component, plus the externality charge.

Whilst I'd much rather slash fuel duty by 16p overnight, and then argue over the rest regarding externalities, these gentle steps would put some transparency around fuel duty and cease the endless increases just to pay for general government expenditure. If all the roads were privately owned, or run as a business, they wouldn’t be paid for by fuel duty, but from user charges. However, unless and until that sort of radical reform is implemented, the second best option is to treat fuel duty as being linked to road use and road spending.  It would stop penalising the road transport sector and treating it as a cash cow.

Putin's shadow is up to Russians to resist

For all of the news about the rigged Russian Presidential election, it is probably a fair assumption that he still commands considerable support.  Middle class Russians in major cities may be disenchanted, but elsewhere the strong hand and steadiness of Putin gets much respect.  

After all, Russia has no tradition of vibrant liberal competitive politics, it has a tradition of revolution, authoritarianism, corruption and subservience.

There was a chance for Russia to have joined the Western world's prosperity, modernity and traditions of individual rights and freedoms, when the Tsar was overthrown by a liberal democratic revolution.  However, it was Lenin and the Bolsheviks who overthrew the liberal revolution, and so set in a chain of events that saw tens of millions slaughtered.   Think of those killed by Lenin, Stalin and his successors, the murderous regimes installed in Mongolia, most of eastern Europe, North Korea,  Ethiopia, or how about the pact with Nazi Germany, that allowed Hitler to conquer Western Europe and which no doubt delayed the end of the war and the Holocaust.

70 odd years of Marxism-Leninism has brutalised Russians, it has made them cynical of politics, as it became a tool for personal advancement, for corruption.  It was a path for sociopaths and psychopaths to have fruitful careers.  The state was an instrument of fear, that nationalised lives, brains, property and ideas.  Those with ambition, entrepreneurship, innovation and creativity either had to surrender it to the "good of the working class", or to be ironed flat, to surrender themselves, their creations and their ideas.  For under "really existing socialism", individuals were to be categorised, classified and to worship those who used their hands, not their heads, who followed orders and did manual labour, not creating inventions and innovation.  The rivers of blood, echoes of screams, corpses, tears and bones arising from that system left those remaining a different people from those of western Europe in some ways.  Brutalised and hardened, cynical and saddened.  

Mikhail Gorbachev set them free to complain, to know the truth and talk the truth about the system, the economy, but retained the system that kept them in chains, and which was already corrupted beyond repair.   He faced a coup by gangsters wanting to turn the clock back and was saved by Boris Yeltsin, who then embarked on reforms on a grand scale.

The privatisations of the 1990s were well intentioned, but easily hijacked as a people who had never owned shares were offered easy money by entrepreneurs and gangsters as they hoovered up former state monopolies.  The oligarchs were born, meanwhile the institutions of state that mattered remained corrupted.  The underpaid police, the courts, the prisons and a justice system with literally no history of objective justice, of appeals, of challenging evidence of checks and balances.  

It was ripe to be bought, to be undermined before it even started.  Property rights weren't even embryonic, they were stagnant and subject to whim.  

It was from this disorganisation, the emergence of the oligarchic state and an economy that had its archaic heart decimated by truth and the end of subsidies, that a non-descript former KGB bureaucrat emerged to become Yeltsin's choice as successor.

Putin dreamt of being a spy as a child.  He joined the KGB, went to East Germany to train agents of foreigners, but as he did his work, it was being undermined.  Perestroika saw funding and interest in his work decrease, and then when Gorbachev insisted on letting East Germany go, he saw his position shifted back to the USSR.  In short, Putin saw what he had worked for eroded, he saw rapprochement and friendship emerge with those he had been taught were enemies, and he took the traditional Russian view that is suspicious of the outside world.  

So he threatened, bullied and killed journalists who questioned him, who questioned his state and his party.  He ran elections where pre-selected opponents from the fascist and communist parties he sympathised with ran flimsy campaigns, and the real opponents were excluded.

For some time Russians were complacent, because it coincided with rises in oil and gas prices, and a flood of foreign exchange as a result.  The new money saw the state flushed with booty, able to spend on jobs, welfare and pay rises for the military and the wider state.

Yet the good times were not for all, and entrepreneurs, intellectuals, creative Russians, those not connected to the state or oligarchs, those affected by corruption, by the random whims of the state, and those not enamoured by the mindless hedonistic wild west of Russia's energy fuelled wealth, were less than happy.  Those with the education and the means leave, for they see little future in a society dominated by an authoritarian corrupt gangster state.  The unpredictable, unreliable, corruption fuelled state couldn't be relied upon to respond to assault, theft, rape or murder, when it was owned by those who committed those crimes, and would commit them itself for the state or for themselves.   That's ignoring the nasty under currents of racism, anti-semitism, sexism and overall bigotry that ran through the society.

So now some have spoken up, some are being brave, some are wanting something different.  However, it isn't enough, for now.  Much money in Russia depends on having a state willing to use force or to be absent when it fits its interests, and the state keeps many in employment.   Many Russians like having a strong man in charge, they have known little else except for 10-15 years of "chaos", unemployment and what has been portrayed as "weakness" and "humiliation".  For over a decade young Russians have been taught about the glory of the Soviet Union, with absolutely no contrition or reflection on what happened in that era.

Putin will last a few years, but it will be Russians themselves who will need to throw off him and his regime, and demand change - and to do so, they need to stand together and fight for it.  If they don't, Putin will continue to preside over a shrinking country, with shrivelling population, a military that bites and barks, but which is increasingly ignored by all beyond its immediate former satellites which it can bully (like Georgia and Ukraine), and be left behind.  Despite Putin's clear schadenfreude over the global financial crisis, he has nothing to gloat about.  Indeed, the very cynicism that saw the Soviet house of cards collapse ultimately will do the same to his system, with the one component present that the USSR didn't have - the internet and other communications technology means he has not got control of growing parts of the media.   

The game continues...

North Korea plays its usual game

The news that the DPRK had decided to freeze its uranium enrichment operation in exchange for food aid from the USA is not surprising.

For it is part of the pattern of behaviour that the regime has followed since the end of the Cold War.  It goes like this:

-  Have talks with the USA;

-  Agree to "be good" in exchange for money, aid.  "Being good" could be to allow nuclear inspections, allow family reunion visits, stop missile testing.

-  Receive the aid, be it anything from food, to technical expertise, to assistance in building a light water nuclear reactor;

-  Avoid being totally transparent about nuclear inspections, or stopping testing, and blame the US for not providing all that it promised;

-  Allow all statements from the US that the DPRK has not met promises to be rebuffed with vituperous invective;

-  US cuts aid and support;

-  DPRK starts being "bad" openly, saying it is for self defence.  e.g. send off a missile over Japan, test a nuclear weapon,  shell an island, threaten to create a "sea of fire";

-  A few years of stalemate;

-  DPRK uses back-channels to seek face-saving agreement to get given a bribe to stop being bad;

-  Have talks with the USA... Insist there not be talks with South Korea (the "south Korean puppet clique") or Japan or include Russia or China, because you want to be treated as an "equal". 

This time the reason for capitulation is two fold.

Firstly, Kim Jong Un has barely been in power 2-3 months, and needs to keep the army and the party nomenklatura happy.   His power is entirely dependent on satisfying those in the military who enjoy a comfortable lifestyle due to black market trading in arms, drugs and counterfeit currency printing.

Secondly, 15 April 2012 will be the 100th anniversary of Kim Il Sung's birth, and the masses need gifts to prove the state remains "generous".  In addition, Kim Jong Il promised that in 2012 the DPRK would be a wealthy country.  Some food aid will help with this.

So whilst some in the media see it as a breakthrough, it remains business as usual - the USA facilitating the continuity of a totalitarian regime.

Air NZ Airpoints greatly devalued UPDATED

Whilst I usually write about global or NZ politics and bigger issues, this one is more personal to me, and is relevant to all those who fly Air NZ frequently, especially on either long haul trips or premium fares.  

If you've never flown long haul in business class, you shouldn't read this, as you wont understand how much of a hell hole economy class is in comparison.

Air NZ has decided to abolish airpoints upgrades.  In other words, from the end of May 2012, you will no longer be able to request an upgrade using airpoints for a fixed value.  To me, this was one of the greatest benefits of sticking to the programme, even though I live in the UK.

Loyalty programmes are seen across the retail world today, but the first common incarnation of them was with frequent flyer programmes.  They came about as airlines saw an advantage in giving their customers something back if they flew regularly, particularly as the most regular customers tended to be business travellers on more expensive fares. 

The easiest way to do this at the time was to give points or miles according to how far someone flew.  A trip from Auckland to London would provide much more "benefit" to the traveller than a trip from Auckland to Whakatane.   Given that travel in premium cabins generates far more revenue than in economy, especially discount economy, airlines would provide additional points for travel in the front, but may half or even quarter the return from travel in the cheapest seats.

The return for the airline was loyalty, because the frequent traveller could use the points to buy free flights for oneself and family, or to upgrade on leisure trips.  The value being that the high value fares would remain with that airline because those "perks" were worth it.  It has become commonplace for business travellers to pick airlines as much because of loyalty programmes as with standards of service or price (up to a point).

Air NZ saw a flaw in this from its point of view a few years ago in that miles (or km) flown did not reflect revenue it gained from travellers.  A cheap fare to London would earn much more in miles than a person paying the same for a few full fare domestic flights, so it shifted to Airpoints dollars.  This meant Airpoints Dollars earned reflected amounts that more closely related to fares spent in each class for different trips.   From the customer's point of view, it meant Airpoints dollars could be treated as currency and used to buy a ticket with the points as if they were money. 

Another layer was built on top of this by setting up status grades.  For Air NZ it meant that beyond a certain threshold of points earning in a year you could get Silver, Gold or Gold Elite status.  They represented rising layers of priority for service, but most importantly Gold and Gold Elite offered the ability to use Business Class check in and luggage allowance, regardless of class of travel, and access to all Business Class/Koru lounges regardless of class of travel, for ALL Star Alliance airlines (barring the odd exception).  In short, it meant that if you travelled enough especially in premium cabins, you could be treated as a Business Class customer at the airport no matter what class you book in - a major benefit.  In addition, you got priority when booking flights and requesting upgrades.

Upgrades have varied importance in difference airline markets.  Airlines obviously want people to pay to travel in premium economy and business class, because they would go out of business if people always upgraded.  However, the value of allowing upgrades for unsold seats was that it secured strong loyalty.  

Whilst some airlines, notably in the US, offer upgrades quite freely to their customers based on status (and as a result don't have particularly good premium cabins), Air NZ has never as a rule automatically upgraded customers as a right (occasionally it happens for operational reasons).  To get an upgrade on Airpoints you had to request it spending Airpoints dollars or use one of the two maximum "recognition" upgrade vouchers provided to customers with status.  The Airpoints dollars could either be spent on a standby upgrade (which would mean that it would not be confirmed until and unless it was clear the seats wouldn't be sold) or a confirmed upgrade (costing much more and requiring the traveller to not be in a discount fare category).  

Those with the highest status had the highest chance for an upgrade, which was understandable as these were people who spent the most on the airline, or its partners (which credited it with revenue) so were the ones who are the most HVCs (High Value Customers).  Those with plain old Jade status would only get an upgrade if there were seats remaining after Gold Elite, Gold and Silver travellers had had their upgrade requests allocated.  However, if you didn't spent Airpoints Dollars or a voucher on an upgrade, you wouldn't get one (unless circumstances were exceptional).

For a frequent traveller, the ability to spend Airpoints dollars on upgrades on Air NZ long haul flights was highly valued.  It meant that if given the choice between flying economy class on Singapore Airlines or Air NZ, Air NZ would win because there was a chance of spending Airpoints dollars to request an upgrade, whilst earning more Airpoints dollars than if one flew on Singapore Airlines.   Same in comparing Air NZ with Qantas in premium economy (and soon Cathay and Malaysian both of which will offer premium economy).

It meant that frequent long haul travellers in business class could avoid the hell of flying long haul economy if they had status and points to burn, and it kept those travellers loyal to Air NZ on those long haul business class flights.  It also meant premium economy gained a lot more value than it had before, as a "tolerable" compromise class which was worthwhile if there was a chance of upgrading to business from it. 

Air NZ in recent years has tweaked the programme to effectively seriously cut the ability of those paying discount fares to gain status points and Airpoints Dollars in any great volume.  Around 15% of Airpoints members have status, meaning most of those who are members don't fly much.  Those who do fly much (and I have had Gold Elite, Gold or Silver status continuously with Air NZ for 16 years now - currently Gold), the programme has some value.

So what has been announced in the last 24 hours has virtually destroyed that.

Airpoints upgrades are being abolished, in favour of an auction scheme for upgrades.  Instead of simply requesting an upgrade for a fixed value of Airpoints dollars, a traveller will have to make a bid using Airpoints dollars or cash.  It means that frequent flyers with status may be trounced by infrequent flyers with money.  It means that instead of paying for a ticket and simply requesting an upgrade, you have to think about participating in an auction for an upgrade.   

Frankly, I'd rather just request my upgrade and if I get it, lose a fixed sum, if not, just stay put than have all the fun of an auction.

It's simple Air NZ (and as a state owned carrier I can give a damn), the people who request airpoints upgrades are high value customers whose loyalty you ought to want to keep because they generate much of your revenue.   You've now told them that their loyalty, reflected in airpoints dollars, is actually worth precious little because they are being treated like everyone else.  

So loyalty will float off to Qantas/BA/Cathay in OneWorld or Emirates.

The commercial decision to do this appears transparent - airpoints upgrades were clearly too cheap, even though the means to earn airpoints had dropped dramatically.  The airline wants more airpoints burned, but in doing so it has meant that those who earn the most, don't get any recognition for their status.  It also wants money from people bidding on upgrades, but then it would have got that anyway from those people without the airpoints dollars to do it.

The alternatives are clear:

-  Refocus earning airpoints dollars as simply being a percentage of the price of the ticket.  This will mean those who pay the most earn the greatest redemption, providing a modest incentive to pay more.

-  Tighten up the process for assessing standby upgrades to reflect fares paid as well as status.  This also means loyalty is rewarded and it also provides an incentive to pay more.

-   Restrict airpoints upgrades to those with status only.  That also incentivises status and means people will strive for status to get preferential access to upgrades.

However, no.  Air NZ has decided to devalue something that many high value customers regard as worthwhile.

Rumour has it that Qantas sees this as a magic opportunity to offer Gold and Platinum status matches for Air NZ Golds and Gold Elites willing to make the switch.  Given Qantas and Jetstar can rival Air NZ on the Tasman, on most routes to Asia and Europe and the main trunk domestic routes, this could be costly for the airline.

It has the comfort of monopolies on most of its routes, but on the routes I use the most, it has plenty of competition (London-LA, London-Hong Kong-Auckland), including airlines now introducing premium economy.

If you're an airpoints member, then you ought to notice you've just lost some value from your account. If you're not, and you wonder why I'm worked up about it, then just consider me eccentric and a travel snob - because I am.

UPDATED:  Since I wrote this, two things have changed.  First, Air NZ has since announced that it is RETAINING Airpoints Upgrades of fixed value for its Gold Elites.  However, it appears that they will only be confirmed on checkin, when previously they could be confirmed up to one-year in advance.  It appears they will come AFTER OneUp upgrade bids, which means Gold Elites don't exactly get priority, but rather the crumbs.

Secondly, Air NZ's communications to its status Airpoints members have indicated that their OneUp upgrade bids will actually be higher value than those without status.  Silver Airpoints members will have a "premium value" layered on top of their bids, but it is unclear what this means (1%, 10%?).  Gold Airpoints members will have a premium value of "three times that of Silver", but again what does that mean?  Gold Elite is more again.

My chief concern about all of this is the lack of transparency.  I have never minded throwing in an airpoints upgrade request and taking my chances, knowing full well that my chances depend, in part, on my status.  Gold Elite's first, Golds second, Silvers third, everyone else below that.  However, to engage in an auction, where anyone can bid, with cash, not knowing what status means, just cheapens the experience.

I am happy for Air NZ to introduce OneUp upgrades.  Sure, feel free to flog off upgrades to anyone, if you have any left after those with status.  However, give your status Airpoints holders first preference.   Make the leap from economy to business premier much more expensive in Airpoints dollars terms than it is now (because that doesn't reflect the fare difference), but make sure status holders feel valued.

The man's search for a tyrannical fatherland never ends

You see, George Galloway is a sycophant for the Assad regime when he visits it, then denies it when he returns.  Ask yourself why the so-called peace movement of the left is rather quiet about Syria, and seek out whether the real reason is because it prefers the fact that Assad's regime has never been Western backed, always been anti-Israeli, was allied to Saddam Hussein, provides succour for Hezbollah and Hamas, occupied Lebanon without a peep of protest from the "peace" movement and has a Russian military base just to prove how anti-Western it is:





 Christopher Hitchens tells it like it is as he also calls it the "so-called anti-war movement".