Sunday, January 2, 2011

High petrol prices equals low polling numbers

Peter Hoskins over at the excellent Spectator Coffee House Blog has pointed out the history of high petrol prices correlating to low government polling numbers.

Apparently when petrol was at it's previous highest we had our largest lead over Labour and when it was at its lowest they closed the gap to just 1 point.

As he points out VAT increasing and an increase in fuel duty is about to drive what is already a high price even higher. This could be bad news for the government.

You can see why this correlation happens when there's significantly less correlation to overall inflation (which has also been rising). Petrol is the one thing most people buy exactly the sane amount of every time, and being creatures of habit, normally from the same place, as a result they are incredibly sensitive to price changes. When your tank empties you go fill it right up again and if it cost you £60 last time and £65 this time you feel that you have less money in you pocket. By comparison it's a rare family that buys exactly the same things every week in the supermarket so price increases are much less noticeable there even if month on month they may be higher.

So what can the Government do? At the moment very little. The manifesto, but not the coalition agreement, included a fair fuel stabiliser which would fluctuate fuel duty up and down based on the underlying price of petrol. This is a fascinating idea but difficult to implement at s time of deficit reduction as fuel duty is a flat pet litre rate not a percentage so it results in fluctuating revenues for the exchequer.

My prediction is that if underlying petrol prices continue to soar then this will be announced in this year or next year's budget to come into force in two years time therefore giving a temporary polling boost and delivering a pre election lower petrol price related boost as well.

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