Discuss Whether Indirect Taxes on Petrol and Diesel Fuel in the Uk Should Be Reduced

1262 Words Apr 23rd, 2014 6 Pages
Discuss Whether Indirect Taxes on Petrol and Diesel Fuel in the UK should be reduced
The main reason that a government imposes a taxes on fossil fuels is to try and correct for the negative externality (pollution) which is produced when they are consumed. Without the tax there would be a market failure as drivers would be over consuming petrol as they are not being charged for the damage to the environment. In order to order to answer this essay as to whether the tax should be reduced, I am going to focus on 3 aspects; those that lose from a reduction, those that gain from a reduction and finally at what level the overall price for petrol was BEFORE the tax reduction. In my conclusion I will show that this is key to deciding whether the
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This would explain why this argument can dominate headlines for a government during a recession, as a small increase in disposable income can have a big affect on utlity (happiness) for consumers/voters. An extension of this is that the poor would benefit especially from this tax decrease, as indirect taxes are generally regressive, which means that those on lowest incomes have to pay more (as a % of their total income) than higher earners. This is one of the problems with an indirect tax, and this problem would be reduced if the tax was reduced. Rich drivers on the other hand maybe happy to pay the higher tax, as they can afford it and it reduces the number of other drivers on the road – therefore reducing their congestion.
Haulage companies, firms working in complimentary industries (car manufacturers) and any firm using vehicles to transport their goods or staff would also benefit from a tax decrease. Haulage firms and those consuming petrol would benefit in exactly the same way as consumers, however they would see their profit margins rise as their costs went down. This could have additional benefits to an economy if companies used this profit to invest in expanding their business, employing extra staff and increasing tax revenue to the government (through corporate tax). If this was more than the loss of revenue from the decrease in tax, then the government might also gain from the tax reduction (this though is unlikely as it

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