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PostPosted: Sat Oct 19, 2013 17:03 
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The Institute of Economic Affairs has recently published an interesting paper by Chris Snowdon entitled Aggressively Regressive, setting out how so-called "sin taxes" have a disproportionate impact on the poorest sections of society.

This also considers tobacco and alcohol duties, but what he says about motoring taxes is telling:

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Despite the strange metropolitan belief that motoring is a luxury of the wealthy, car ownership is widespread amongst low income groups outside of central London. Nearly half (46 per cent) of individuals in the bottom income quintile own a car, rising to 68 per cent for pensioners and couples with children (Office of Fair Trading, 2010: 73). This is lower than the rate in countries such as France and the USA, and it is significantly lower than the rate amongst the rest of the UK population (81 per cent), but it not low enough to justify being neglected by anti-poverty campaigners.

The benefits to the poor of having access to a car were spelt out by the Office of Fair Trading in a 2010 report: ‘Without access to adequate means of transportation, the poor are at risk of facing social exclusion, as they are unable to access food shopping, financial, leisure, health and education facilities that are not within walking distance. In addition, for car owners the marginal cost of a journey can be less than half the cost of public transport. This is particularly significant for family travel.

Snowdon also points how average figures don’t necessarily reflect people’s real-world situations:

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In 2011/12, duty on petrol and diesel was 58p per litre and prices at the pump averaged £1.33 and £1.41 respectively. The bottom quintile spent an average of £244.50 on motor fuel duty, excluding VAT, which amounts to 8.1 litres per week. The total annual cost of this petrol and diesel, including fuel duty, VAT and the product itself, amounts to £578 per household.

This cost is not spread evenly throughout the quintile, however, but is paid only by those who own a vehicle. 54 per cent of the poorest quintile do not own a vehicle and therefore pay no fuel duty. It is the remaining 46 per cent who pay, on average, £1,257 each - 11.1 per cent of their disposable income. On average, these drivers buy 18 litres of petrol or diesel per week.

In total, 61 per cent of the cost of a £1.33 litre of petrol, and 58 per cent of a £1.41 litre of diesel, is made up of duty and VAT (AA, 2011). Of the £1,257 that low income drivers spend on fuel per annum, £748 goes straight to the government in duty and VAT. These taxes amount to 6.6 per cent of their disposable household income. Vehicle excise duty relieves them of a further 1.6 per cent of their income (an average of £185 per annum). Motoring taxes therefore cost them 8.2 per cent of their annual household income.

This gives the lie to the widely-held belief that the poor don't drive. Motoring taxes have a disproportionate impact on the poor, rises in them even more so. Osborne's ongoing fuel duty freeze suggests that to some extent he recognises this.

Yet those politicians bleating on about the "cost of living crisis" seem to be indifferent to what actually makes a major hole in poor people’s wallets.

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PostPosted: Sun Oct 20, 2013 10:41 
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So, what's the solution? Charge people variable prices for fuel according to their income? This is just restating the obvious that high prices and taxes affect the lower income groups more than those on higher levels.

The one additional point raised is that more poor people than you imagine run cars. The worrying thing is that squeezed budgets may mean poor maintenance and safety.

As for progressive versus regressive taxation, you should not try to perform social engineering via taxation. A flat rate tax like fuel duty is fair to everyone. The more you drive, the more you pay.

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PostPosted: Sun Oct 20, 2013 13:39 
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malcolmw wrote:
...A flat rate tax like fuel duty is fair to everyone. The more you drive, the more you pay.


Only up to a point, I think. The poorest motorists tend not to run the latest, most fuel-efficient cars (because they can't afford them). I therefore think that the poorer (say) 25% of the motoring spectrum spend a much greater percentage of their income on running their cars than the top 25%. I certainly don't think Vehicle Excise Duty is a big enough percentage of the cost of car ownership to make a significant difference to choice of car.


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PostPosted: Sun Oct 20, 2013 15:36 
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Also people living in the countryside tend to be on lower wages than people living in cities, as well as doing more miles for basics such as a visit to the supermarket etc, they also rely on their car more on a day to day basis, even for just driving to work.

As Mole says, these people will mainly run old/inefficient bangers and a duty on mileage covered will encourage them to save on things like maintenance.

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My views do not represent Safespeed but those of a driver who has driven for 39 yrs, in all conditions, at all times of the day & night on every type of road and covered well over a million miles, so knows a bit about what makes for safety on the road,what is really dangerous and needs to be observed when driving and quite frankly, the speedo is way down on my list of things to observe to negotiate Britain's roads safely, but I don't expect some fool who sits behind a desk all day to appreciate that.


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PostPosted: Sun Oct 20, 2013 19:59 
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Mole wrote:
malcolmw wrote:
...A flat rate tax like fuel duty is fair to everyone. The more you drive, the more you pay.


Only up to a point, I think. The poorest motorists tend not to run the latest, most fuel-efficient cars (because they can't afford them). I therefore think that the poorer (say) 25% of the motoring spectrum spend a much greater percentage of their income on running their cars than the top 25%. I certainly don't think Vehicle Excise Duty is a big enough percentage of the cost of car ownership to make a significant difference to choice of car.

Another way of looking at it might be that the top 25% probably run bigger cars which generally use more fuel. They therefore pay more tax. So, it's the careful middle class with their newish fuel efficient cars who are "getting away with it". :)

I generally agree about VED but, in the limit, the poorest may chance it and have none whatever car they have and if you have no tax you probably have no insurance either.

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PostPosted: Sun Oct 20, 2013 22:03 
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malcolmw wrote:
Mole wrote:
malcolmw wrote:
...A flat rate tax like fuel duty is fair to everyone. The more you drive, the more you pay.


Only up to a point, I think. The poorest motorists tend not to run the latest, most fuel-efficient cars (because they can't afford them). I therefore think that the poorer (say) 25% of the motoring spectrum spend a much greater percentage of their income on running their cars than the top 25%. I certainly don't think Vehicle Excise Duty is a big enough percentage of the cost of car ownership to make a significant difference to choice of car.

Another way of looking at it might be that the top 25% probably run bigger cars which generally use more fuel. They therefore pay more tax. So, it's the careful middle class with their newish fuel efficient cars who are "getting away with it". :)

Not half as much as the cyclists are "getting away with it" then! :wink:
I think the thing with the top 25% running bigger, thirstier cars is probably true, but with the important distinction that THEY have a choice about driving a thirstier car than is necessary to meet their needs. The bottom 25% generally don't have that choice. Obviously, though, I certainly agree that the thirstier and more expensive a car you drive, the more tax you are likely to be paying - and that's only fair, I guess.

malcolmw wrote:
I generally agree about VED but, in the limit, the poorest may chance it and have none whatever car they have and if you have no tax you probably have no insurance either.

Fair point. A lot of them do already and I'm sure making things even more expensive won't reduce that!


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PostPosted: Sun Oct 20, 2013 23:01 
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All flat rate taxes on purchasing necessities must be regressive for the simple reason that the amount that one person can consume is limited (especially for alcohol :-)) but the amount that one person can earn is, of not unlimited, potentially very high. The solution is very simple: do not tax necessities - food, fuel, housing, transport, clothes - and make up the deficit with increased taxes on income. which are either neutral or progressive.

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