Oil prices at lowest level since 2021 – but will motorists benefit?

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4 weeks ago

September 10, 2024

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A slump in oil prices could lead to further reductions at the fuel pumps but any benefit risks being stripped away next month as the chancellor seeks ways to bolster the public finances.

A barrel of Brent crude, the international benchmark, slipped below $70 for the first time since December 2021 on Tuesday afternoon.

The month ahead contract was down by as much as 4% on the day at one stage, following a monthly report by the OPEC+ group of major oil-producing nations that further cut demand expectations for both 2024 and 2025.

Money latest: These job titles could be hiking your car insurance premiums

The weakening prospects, coupled with growing expectations of oil oversupply, kept the market suppressed according to analysts.

They said the only upwards pressure was being applied by an incoming storm that could affect production in the Gulf of Mexico.

Oil prices have plunged from levels nearer $90 since the beginning of July, largely on the back of evidence that major economies are slowing.

Motoring groups have long complained wholesale fuel prices have failed to keep pace with that decline – being quick to rise but slow to fall.

Sustained oil weakness should push fuel costs down further

Wholesale costs, also recently aided by a stronger pound versus the oil-priced dollar, stood last week at their lowest levels since October 2021, according to the AA.

But it said that without the 5p-per-litre fuel duty cut imposed by the last government to keep a lid on rising prices in 2022, that three-year low for wholesale costs would have been delayed by up to a fortnight.

The AA said the gap between wholesale costs – what retailers pay – versus pump prices had reduced in recent weeks amid regulatory pressure.

Critics have long accused retailers of profiteering, bolstering their margins for a third year after the Competition and Markets Authority accused filling stations of overcharging motorists to the tune of almost £2.5bn during 2022 and 2023 combined. Supermarket chains were singled out for particular criticism.

But with oil costs falling further, it is speculated that chancellor Rachel Reeves may feel able to remove the 5p duty cut without drivers noticing much change at the pumps, assuming pump prices continue to ease – albeit slowly.

She is widely expected to use her first budget on 30 October to fill, what she can, of a £22bn “black hole” she claims to have found in the public finances inherited from the Tories.

Cuts to winter fuel payments are among measures already announced.

The Treasury has refused to comment on possible other announcements though the wealthy have been put on notice that they will bear the brunt of tax hikes.

A fuel duty reduction has, therefore, not been ruled out.

AA president Edmund King said last week of a fuel duty hike threat: “Removing it threatens to send millions of low-income drivers back into the era of ‘perma-high’ road fuel prices.

“Getting rid of the fuel duty cut unleashes a £3.30 a tank (standard 55 litres) shock on the personal and family budgets of the 28% of drivers who spend a set amount when they go to a fuel station.

“With 33 million drivers in the UK, that is more than nine million affected private motorists – most of whom are low-income and struggling to balance their budgets.

“If the current pump price rebounds to 144p a litre, and then 6p is added with a fuel duty hike and the extra VAT it will bring, it will plunge the least well-off families and families back into the nightmare of petrol at 150p a litre or more”. he concluded.

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Chancellor may need to raise taxes by £25bn, IFS warns

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2 hours ago

October 10, 2024

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Chancellor may need to raise taxes by £25bn, IFS warns

The chancellor will need to raise taxes by £25bn if she wants to keep spending rising with national income, according to the Institute for Fiscal Studies (IFS).

In its annual ‘Green Budget’ analysis, the IFS warned that the government would have to dramatically increase the £9bn of tax rises outlined in its manifesto to meet the pressures on public services.

The chancellor is likely to stick to her fiscal rule, which requires day-to-day spending to be met by tax revenues. This means she cannot increase borrowing to fill the gap.

Rachel Reeves will present her first budget in the Commons on 30 October. Paul Johnson, director of the IFS, said this budget could be “the most consequential since at least 2010”.

The new Labour government has already pledged in its manifesto to increase government budgets by £5bn and is spending £9bn to settle public sector pay disputes.

If Labour makes no further changes to the spending envelope, which was outlined by the previous government in 2021, it would register a surplus of £17bn.

However, those spending plans are considered wildly unrealistic and would involve real term cuts to unprotected budgets.

There is very little appetite for further cuts to public spending, so the chancellor could protect those budgets from inflation. That would leave her with a surplus of £1bn.

However, if she opted to protect spending as a share of national income – which better reflects population increase – she would record a deficit of £16bn.

That combined with the £9bn of tax rises already promised would see taxes increase by £25bn, further adding to a tax burden which is at a generational high.

Over-zealous borrowing plans could risk a UK buyer’s strike

The UK risks a buyer’s strike in the bond markets if the chancellor is over-zealous with her borrowing plans.

Rachel Reeves is expected to outline plans to increase borrowing for investment purposes in her Budget on 30 October.

Although she has a debt rule that requires debt to be falling as a share of GDP in five years time, she could change her definition of debt to give herself extra headroom.

In doing so, she could find up to £50bn in additional headroom. However, the IFS warned the government against borrowing this much money.

Economists said the chancellor should be slow and steady with any increases in borrowing, with full oversight of institutions such as the National Audit Office.

They note that the UK has greater liquidity risk than its neighbours, including the EU so it was more exposed to changes in investor sentiment.

It would be bigger than the net tax rises recorded in July 1997 and October 2010, which were both around £13-£14bn.

The government has also penned itself in by promising not to raise income tax and corporation tax or to increase National Insurance or VAT.

The IFS said that, even if Labour’s planned £9bn tax rise is implemented, trying to balance the current budget while avoiding cuts to public service spending would put the budget “on a knife edge” and highly sensitive to OBR judgments.

It said the chancellor has inherited an “unenviable” public finance situation as taxes are already at a historic high and debt is rising, while public services such as prisons, police and local councils are under strain.

Mr Johnson, said: “The first budget of this new administration could be the most consequential since at least 2010… Taxes are at an all-time high, and she is tightly constrained by her pledges not to raise the main rates of income tax or corporation tax, or to increase National Insurance or VAT at all.

“The temptation then is to borrow more, perhaps changing the definition of debt targeted by the fiscal rules. But, given her pledge to balance the current budget, that would not free up additional resource for day-to-day spending.”

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Post Office inquiry: CEO Nick Read says he doesn’t need to clear his name after criticism

Published

16 hours ago

October 9, 2024

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Post Office inquiry: CEO Nick Read says he doesn't need to clear his name after criticism

The outgoing boss of the Post Office has said he does not need to clear his name following criticism of his leadership over the Horizon IT scandal.

Nick Read made the comments as he arrived for the first of three days of evidence to the inquiry into the scandal, in which more than 900 sub-postmasters were wrongly prosecuted for stealing cash because of faulty computer software.

The chief executive, who took over from former boss Paula Vennells in 2019, has been accused of prioritising his own pay over compensation for victims, and of failing to tackle the organisation’s culture.

Mr Read is due to step down from the role next year, as previously revealed by Sky News.

As he arrived at the hearing in central London, Sky News’ Adele Robinson asked if the inquiry was his last chance to clear his name.

He replied: “I’m not really sure I’ve got to clear my name.”

It came as the inquiry heard on Wednesday that one of its core participants, former sub-postmaster Gillian Blakey, died last week before receiving her final compensation settlement.

Mrs Blakey was sacked and her husband was prosecuted over an alleged shortfall at their branch in Lincolnshire – before his conviction was later quashed.

Inquiry chairman Sir Wyn Williams said: “My understanding is that Mrs Blakey had not received additional compensation to which she was entitled…

“That must be a matter of great regret for all concerned.”

It comes following complaints that it is taking too long for victims to be paid from the four compensation schemes that have been set up.

Mr Read told the inquiry he had not been made not fully aware of the “scale and enormity” of the scandal before he took up the role of chief executive in 2019.

When asked if senior leadership had been in a “dream world” about the extent of the issues following initial High Court judgments into the scandal, he replied: “I think it would be impossible not to conclude that.”

Mr Read also said some people at the organisation may have had the view that “not every quashed conviction” was an “innocent” sub-postmaster.

However, he added: “The majority of the organisation would agree that the action that has been taken is absolutely the right action and whether there are guilty postmasters that have been exonerated really is no longer an issue.”

The chief executive, who announced in July he was temporarily “stepping back” from the role to prepare for his appearance at the inquiry, also denied describing a group of Post Office investigators as “untouchables”.

It comes after former chairman Henry Staunton made the claim during his earlier evidence. He said the phrase was used to refer to powerful individuals within the organisation who were involved in the prosecutions of sub-postmasters.

The inquiry continues.

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£12bn Thames Water creditor group pitches rescue deal to Ofwat

Published

19 hours ago

October 9, 2024

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£12bn Thames Water creditor group pitches rescue deal to Ofwat

Lenders holding £12bn of Thames Water’s debt have held face-to-face talks with Ofwat this week to pitch a rescue deal that they believe would avert the nationalisation of Britain’s biggest water utility.

Sky News has learnt that a creditor group advised by Jefferies, the investment bank, met officials from the industry regulator on Tuesday to present the outline principles of a business plan that could buy the company vital breathing space.

City sources said that the group now accounted for over £12bn of Thames Water‘s borrowings – roughly two-thirds of its total debts – and comprised 100 separate lenders.

The syndicate is racing to find a solution that would allow a restructuring that would incorporate a massive debt-for-equity swap and see fresh equity injected into the crisis-hit utility, which serves about 15 million customers in London and the South East.

A deal needs to be agreed by the middle of November because Ofwat is due to sign off its final regulatory determination for the company’s business plan at a board meeting in the second half of the month.

Creditors argue that Ofwat needs to demonstrate flexibility in its consideration of Thames Water’s business plan in order to make the company investible.

Further details of the creditor group’s proposals were unclear on Wednesday, although flexibility in relation to customer bill increases will inevitably be a component.

Thames Water is also facing a litany of regulatory fines over its poor customer service performance and dire record on sewage and water leaks.

Plans for an emergency liquidity facility of more than £1bn are also being drawn up, although they are yet to be finalised.

That finalising would buy Thames Water several months more to finalise a rescue plan.

Bankers at Rothschild have been trying to drum up investment in new Thames Water stock in recent months, but with little success amid a lack of visibility about the company’s survival prospects.

Sky News reported last month that Carlyle, the American investment giant, has become the latest global fund to weigh an investment in Thames Water.

Thames Water’s woes deepened recently when its credit rating was downgraded further into junk territory by two leading rating agencies.

Its future remains so shrouded in uncertainty because the industry watchdog, Ofwat, has rejected the company’s initial spending plans for the next five-year regulatory period.

Ofwat is expected to sign off on the appointment of an independent monitor within days to scrutinise the company’s progress against its turnaround plan.

If new investment into Thames Water is not forthcoming before it runs out of cash, the government will have little choice but to sanction the temporary nationalisation of the company.

This would be done through a Special Administration Regime (SAR), a procedure tested only once before when Bulb Energy collapsed in 2021.

As part of its contingency planning for implementing a far-reaching restructuring, Thames Water has booked court dates in November to progress a rescue deal.

Shareholders have long since written off their investment in the company and will not play a role in any rescue deal.

These include a number of sovereign wealth funds and pension funds which plan to attend next week’s International Investment Summit in London.

A spokesperson for the creditor group declined to comment, while Ofwat has been contacted for comment.