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November 2, 2012 / politicsbitesize

The Government giveth and they taketh away

Trident submarine at Faslane

The Coalition Government have been doling out bad news for families, the disabled, pensioners and public sector workers since they came to power in 2010.  This week it is the turn of the motorist to be on the receiving end. A planned rise in fuel duty by 3p a litre in January 2013 will put further pressure on households already struggling to make ends meet.

The Treasury estimates that the rise in fuel duty will yield around £800m in extra revenue for the UK economy, but petrol pricing campaigners are arguing that the 3p extra per litre will actually stall economic growth and cost around £1bn.  The National Institute for Economic and Social Research has compiled a report highlighting the damaging effects of this proposed rise in living costs.

As the fuel expenditure of each household increases the ability to spend elsewhere in the economy (such as on food or clothing) decreases, which will lead to the potential loss of 35,000 jobs.  The report claims that, ‘Any increase in fuel duty raises prices, and therefore causes a fall in households’ real spending power and reduces consumer spending. Lower consumer spending means that firms sell less, leading to bankruptcy and job losses, and putting further pressure on household income.

According to evidence compiled by the Fair FuelUK group, the proposed rise will lead to consumer spending being reduced by 0.1% and will result in a loss of GDP.  Fair FuelUK is meeting with the government this week in order to present a study that shows that if the treasury were to cut fuel duty by 3p, there would be a significantly positive impact on the economy.  A cut would create 70,000 jobs and boost growth by 0.2% because both businesses and households could spend elsewhere and in so doing could contribute to expanding the economy.

However, if the government decides to go ahead with the 3p rise and does indeed obtain the expected £800m in revenue, almost half of it will be swallowed up by the cost of procuring the next generation of nuclear submarines.  The defence secretary, Philip Hammond, announced this week that an extra £350m has been awarded to BAE Systems for the design of the new Successor submarines.  BAE Systems have already been given the £328m contract to design and build the submarines, which are seen as a replacement for the ageing Trident fleet.

The replacement of Trident is an issue that divides the Coalition and Nick Clegg has accused the Conservatives of ‘jumping the gun’.  As part of the coalition agreement both parties promised that any decision to replace the British nuclear deterrent wouldn’t be taken until after the next general election.

The Liberal Democrats are pushing forward a review into finding the cheapest alternative to the replacement of Trident and are calling for the abandonment of the so-called ‘Moscow criterion’*.  Although the announcement by Mr Hammond will look as though it is undermining the Lib Dems’ commitment to a review into the system, Nick Clegg remained positive that his party would continue to examine alternatives.

It is clear that the Ministry of Defence considers the additional funding to be a lifeline that will sustain 1,200 jobs at the BAE site in Barrow-in-Furness.   Furthermore, Mr Hammond has suggested that the investment will shore up the 6,500 jobs that underpin the economy at the Faslane complex in Argyll and Bute, Scotland.

But the Scottish National Party MSP, Bill Kidd, has attacked the suggestion and accused Mr Hammond of using ‘fantasy figures’ when talking about the number of jobs that are dependent on the nuclear weapons system at Faslane.  He said, ‘For the UK Government to boast about spending hundreds of millions of pounds on weapons of mass destruction – while at the same time implementing brutal welfare cuts and slashing investment in the economy – is obscene.’

 

* The ‘Moscow criterion’ refers to the ability to penetrate air defences in the Russian capital.  Sir Menzies Campbell, a Liberal Democrat MP, called for the government to announce an end to this outdated policy at the NATO summit in Chicago earlier this year.

 

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