The black stuff is tumbling again. Brent crude dipped below $60 a barrel this morning, a level not seen since before the Iranian conflict rattled the markets last year. For the beleaguered British motorist, this should be a moment of relief.
But here is the rub: the Treasury's fuel duty freeze, that sacred cow of fiscal policy, is looking increasingly vulnerable as the Exchequer scrambles for revenue. The bottom line is that lower oil prices do not automatically mean lower prices at the pump. The Chancellor, ever the fiscal tightrope walker, is under immense pressure to maintain the freeze, yet the arithmetic is becoming brutal.
The cost of the freeze is roughly £5 billion a year in forgone revenue. With the UK's budget deficit still gaping, that is a luxury the Treasury can ill afford. The market is pricing in a higher probability of a duty hike in the Autumn Statement.
Yet such a move would be politically toxic. Capital flight has already been a spectre haunting the UK as investors eye the widening current account deficit. Meanwhile, gilt yields are drifting lower, suggesting the market is not yet spooked by fiscal indiscipline.
But that could change if the Chancellor breaks the freeze. The oil price crash, triggered by a sudden demand shock and OPEC+ discord, is a double-edged sword. It boosts consumer spending power, but it also emboldens the Doomsayers arguing for fiscal rectitude.
The Bank of England, watching inflation expectations like a hawk, might welcome the deflationary impulse. But the Chancellor knows that history is littered with chancellors who mistimed fuel duty increases. The freeze, first introduced in 2011, has become a totemic policy.
To break it would be a gamble. But with the fiscal headroom evaporating, the question is not whether he will break it, but when. The markets will be watching the October budget with bated breath.
A duty hike would be a signal of fiscal discipline, but it would also be a tax on the motorist at a time when the cost of living is already crushing households. The bottom line is that the oil price crash is not the gift horse the government would have you believe. It is a stark reminder that in the world of fiscal policy, there are no free lunches.
Only tough choices and sharper penalties for those who delay them.
