Wednesday, 11 June 2008

EU response to high fuel prices

Rising fuel and food prices are set to be discussed by EU leaders at their European Council meeting in Brussels on 19-20 June. As oil prices head towards $136 a barrel and fuel protests spread across Europe - last week we saw Europe's fishermen protesting against the high cost of fuel outside the Commission building on Rue de la Loi - the Commission today put out a press release calling on the EU 27 Member States to adopt the EU's energy and climate change package which it sees as the "best coordinated response to rising oil prices" and to reducing their impact on business and consumers.

The Commission is expected to present a Communication to EU leaders at their summit in Brussels which will set out a series of short, medium and long term policy measures the Commission is looking to introduce. These include:
- a report on the functioning of the oil and petroleum markets in the forthcoming strategic energy review,
- the publication of proposals later this year to revise the energy taxation directive and the Eurovignette system for taxing heavy goods vehicles,
- a report in the autumn on the possible use of tax incentives, including reduced VAT rates to encourage energy savings - this comes on the back of calls from France and the UK last autumn for lower VAT rates on energy efficient products such as light bulbs;
- supporting the organisation of a global fuel summit on oil markets between main oil producing and consuming countries and strengthening existing regional and bilateral dialogues in order to achieve better market access and transparency;

The Commission also admits that Member States could provide targeted support when justified to those experiencing the most serious impact of high oil prices, though any measures taken to alleviate the impact of high oil prices must be temporary, non-distorting and shouldn't prevent longer term adjustment to higher prices

There is at least some good news in that the Commission is proposing to revise EU rules on energy taxation. Current EU rules state that the VAT rate on fuel cannot be lower than 15%. Member States cannot apply a VAT rate of less than 15% unless they have the full backing of both the Commission and the Council. There is also a minimum EU-wide rate for excise duty which is set at 330 euros per 1,000 litres of diesel, again which Member States cannot go below. But the Commission has already made it clear that cutting taxes would send the wrong signal to oil-producing countries

President Sarkozy recently urged the EU to cap VAT on fuel when oil prices become too high at the European level and for the creation of a new fund from revenues generated by oil taxes to help those most in need. But the difficulty with such a proposal is that Sarkozy needs the backing of the other 26 EU Member States in order to do this and a number of other countries have already voiced their opposition (Germany, Spain). Italy has proposed the idea of a "Robin Hood" tax - paid by oil companies to those most affected.

However, fuel prices remain the highest in the UK. The SNP wants to see a fuel duty regulator, an idea which is already backed by the Road Haulage Association, and which has been rejected by the UK government.
Of course the problem in Scotland is compounded further by the gaulling fact that despite being one of Europe's key oil and gas producers, the revenues generated from Scotland's oil wealth are ploughed back into the coffers of the UK Treasury.

Indeed, in the 2008 Budget the UK Treasury forecast that revenues from the North Sea would contribute £9.9bn to the UK Exchequer in 2008/09 (based on an oil price of $83.8 per barrel. The Scottish Government estimates that North Sea revenues are set to be over £4bn higher than the UK Treasury forecast based on the average 2008/09 oil and gas prices.

The forecast of over £14bn in oil revenues this year comes on top of revenues since North Sea was discovered in the 1970s of £250bn in real terms. A report published recently by the accountancy firm, Grant Thornton shows that at current oil prices Scotland would have a budget surplus of between £4.4 bn and just over £6bn.

The Scottish government is also pushing London for a 10% share of the £4.4bn windfall tax so that it can be reinvested in the people of Scotland through the setting up of an oil fund. Experts believe that between 25 and 30bn barrel of oils can still be recovered from the North Sea over the next 40 years but if we are to set up an oil fund we need to do it now.

While Norway invested its oil wealth in an oil fund 12 years ago and which is now worth £186 bn the people of Scotland have missed out of their oil wealth over the past 30 years. The Scottish government has announced that it is to commission a study to look into the benefits of an oil fund for Scotland, after it was revealed that an oil fund for the UK had been considered by the Treasury back in the 1970s.

If we are to be able to tackle properly the problems of fuel poverty and alleviate the high fuel costs facing our hauliers, farmers, fishermen and motorists, especially in the more remoter and rural parts of Scotland then Scotland needs to have access to North Sea oil and gas revenues and greater control over fuel prices

It is generally agreed that we all want to see greater action being taken to bring fuel prices under control, not least with increasing concerns about high inflation and predictions of lower economic growth. Once again the London government is not prepared to work in Scotland's interests.

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