Imagine that the team you support has made the final of a major competition or a your favourite band is playing a live concert this summer. You desperately want a ticket and are willing to pay the advertised price. They go on sale at 9.00am in the morning and you go on-line at 8.59am but unfortunately the webpage will not load. You keep pressing the refresh button but with no success. Eventually, annoyed and frustrated, you give up at 10.00am!

Tickets for sporting, musical or other live shows are initially sold by people who organise the events in two ways. They may choose to sell some or all of the tickets directly to the customer. For example you can buy tickets for a West End show from the box office in the theatre. With some football games it is still possible to buy tickets on the day at the stadium. Another approach is to sell some or all of the tickets via an authorised ticket agent. These businesses are usually members of STAR (The Society of Ticket Agents and Retailers) and the organisers of the sporting, musical or live show provide them with tickets to sell on their behalf. Some of the larger and well known agents such as Ticketmaster, Ticketline and Seetickets usually sell the tickets at face value although some booking fees are often added to the price. This initial sale of tickets by either the event organiser themselves or an agent acting on their behalf is referred to as the primary market.

For example, British Athletics sold all of its 130,000 tickets for its two day Anniversary Games on the 26th and 27th July via its authorised ticket agent in 75 minutes!! However an internet search for this event will quickly reveal that tickets are still available!! Unfortunately in most cases the advertised price will be far greater than the face value of the ticket. How is this possible? The answer is that the internet has helped a thriving secondary market for tickets to develop. The secondary market refers to situations where people who have already purchased tickets through the primary market re-sell them to other members of the public. Prior to the internet the main way of buying a ticket in the secondary market was to visit the venue on the day of the event and hunt for some-one willing to sell. However technology has dramatically reduced these transaction costs and made it much easier for potential buyers and sellers to make an exchange. For example companies such as Viagogo, Seatwave, GetMeIn and Stubhub have created websites that allow members of the public to buy and sell tickets. As Viagogo publish on their webpage:

You are buying tickets from a third party, Viagogo is not the ticket seller. Ticket prices are set by the seller and may be above or below face value.

Why does this secondary market exist? An economist would argue that it can only happen if the quantity of tickets demanded is greater than the quantity of tickets for sale at the price set by the event organiser. If this was not the case then customers would be able to buy tickets through the primary market on the day of the match, concert or show. The puzzle is to explain why prices do not rise in the primary market. If the quantity demanded of any product is greater than the quantity supplied then market forces should put upward pressure on prices. However it would appear that many of the event organisers appear to resist this incentive and consistently set prices below the level that would limit demand to the number of tickets available. This leaves an opportunity for sellers in the secondary market to sell tickets much closer to their market clearing rate. Navin Kekane, the business operations director of Stubhub, stated that

What we do is all about supply and demand, and you can sometimes find tickets at below face value.

Some of these companies in the secondary market have recently established formal partnerships with a number of English Premier League (EPL) football clubs and other major sporting bodies. For example Viagogo have signed deals with 10 EPL clubs while Stubhub have deals with 3 EPL clubs as well as Leicester Tigers and the Lawn Tennis Association.

However some observers have expressed grave reservations about the growth of the secondary market. For example Malcolm Clarke, chairman of the Football Supporters Federation, stated that

At the moment if you are fan trying to sell a spare ticket and are not authorised to do so then you face a criminal conviction, even if you sell at the face value.

But secondary ticketing exchanges, because they are authorised, are allowed to do so. Many clubs grant these agencies the right to allow the re-sale of tickets for their matches at above face value. I don’t think that can be right.

Joe Cohen, the founder of Seatwave counters that

Touts is an emotional, dehumanising word. The reality is that they are just speculators. No one likes speculators until you need something from them.

Some have called for more regulation of the secondary market. For example Sharon Hodgson, Labour MP for Washington and Sunderland West, unsuccessfully tried to get a Private Members Bill through Parliament which would have made it illegal to re-sell tickets for more than 10% above their face value.

Articles

Secondary ticketing: Inflating sport prices or useful service? BBC News Bill Wilson (13/5/13)
Sold out: Are Rihanna, Rolling Stones and Justin Bieber fans being ripped off by so-called secondary ticket websites? The Daily Mail Adam Luck (19/1/2013)
Olympic anniversary athletics event sells out in 75 minutes The Guardian Owen Gibson (19/2/2013)
Is this a new golden age for ticket touts? The Observer Laura Barnett (14/4/2013)
5 live Investigates: ‘legalised ticket touting’ by Premier League clubs BBC Sport Andrew Fletcher (2/12/2012)
StubHub UK expands into Premier League Ticket News, Jean Henegan (4/9/12)
Football fans lose out on £64m of tickets due to absent season ticket holders Daily Telegraph, (16/8/12)

As part of the Basel III round of banking regulations, representatives of the EU Parliament and member governments have agreed with the European Commission that bankers’ bonuses should be capped. The proposal is to cap them at 100% of annual salary, or 200% with the agreement of shareholders. The full Parliament will vote in May and then it will go to officials from the 27 Member States. Under a system of qualified majority voting, it is expected to be accepted, despite UK resistance.

The main arguments in favour of a cap are that it will reduce the focus of bankers on short-term gains and reduce the incentive to take excessive risks. It will also appease the anger of electorates throughout the EU over bankers getting huge bonuses, especially in the light of the recession, caused in major part by the excesses of bankers.

The main argument against is that it will drive talented top bankers to countries outside the EU. This is a particular worry of the UK government, fearful of the effect on the City of London. There is also the criticism that it will simply drive banks into increasing basic salaries of senior executives to compensate for lower bonuses.

But it is not just the EU considering curbing bankers’ pay. The Swiss have just voted in a referendum to give shareholders the right to veto salaries and bonuses of executives of major companies. Many of these companies are banks or other financial sector organisations.

So just what will be the effect on incentives, banks’ performance and the movement of top bankers to countries without such caps? The following videos and articles explore these issues. As you will see, the topic is highly controversial and politically charged.

Meanwhile, HSBC has revealed its 2012 results. It paid out $1.9bn in fines for money laundering and set aside a further $2.3bn for mis-selling financial products in the UK. But its underlying profits were up 18%. Bonuses were up too. The 16 top executives received an average of $4.9m each. The Chief Executive, Stuart Gulliver, received $14.1m in 2012, 33% up on 2011 (see final article below).

Webcasts and podcasts
EU moves to cap bankers bonuses Euronews on Yahoo News (1/3/13)
EU to Curb Bank Bonuses WSJ Live (28/2/13)
Inside Story – Curbing Europe’s bank bonuses AlJazeera on YouTube (1/3/13)
Will EU bonus cap ‘damage economy’? BBC Radio 4 Today Programme (28/2/13)
Swiss back curbs on executive pay in referendum BBC News (3/3/13)
Has the HSBC scandal impacted on business? BBC News, Jeremy Howell (4/3/13)

Articles
Bonuses: the essential guide The Guardian, Simon Bowers, Jill Treanor, Fiona Walsh, Julia Finch, Patrick Collinson and Ian Traynor (28/2/13)
Q&A: EU banker bonus cap plan BBC News (28/2/13)
Outcry, and a Little Cunning, From Euro Bankers The New York Times, Landon Thomas Jr. (28/2/13)
Bank bonuses may shrink – but watch as the salaries rise The Observer, Rob Taylor (3/3/13)
Don’t cap bank bonuses, scrap them The Guardian, Deborah Hargreaves (28/2/13)
Capping banker bonuses simply avoids facing real bank problems The Telegraph, Mats Persson (2/3/13)
Pro bonus The Economist, Schumpeter column (28/2/13)
‘The most deluded measure to come from Europe since fixing the price of groceries in the Roman Empire’: Boris Johnson attacks EU banker bonus cap Independent, Gavin Cordon , Geoff Meade (28/2/13)
EU agrees to cap bankers’ bonuses BBC News (28/2/13)
Viewpoints: EU banker bonus cap BBC News (28/2/13)
Voters crack down on corporate pay packages swissinfo.ch , Urs Geiser (3/3/13)
Swiss voters seen backing executive pay curbs Reuters, Emma Thomasson (3/3/13)
Swiss referendum backs executive pay curbs BBC News (3/3/13)
Voters in Swiss referendum back curbs on executives’ pay and bonuses The Guardian, Kim Willsher and Phillip Inman (3/3/13)
Swiss vote for corporate pay curbs Financial Times, James Shotter and Alex Barker (3/3/13)
HSBC pays $4.2bn for fines and mis-selling in 2012 BBC News (4/3/13)

The Big Four are well known: Deloitte, Ernst and Young, KPMG and PWC. They act as auditors for 90% of the UK’s stock-market listed companies. They have a very close relationship with the companies that they audit and because of this have faced criticism of not warning of the financial crisis. A further accusation is that the relationship between auditors and managers has become blurred.

In some sense, there is a problem of divorce of ownership from control. The companies that are audited by the Big Four have shareholders who are interested in profits and their dividends. But they employ managers who are responsible for the day-to-day running of the business. However, there are concerns that the auditors have become more concerned with meeting the interests of the managers and not of the shareholders. It has been suggested that the company’s management tend to ‘present their accounts in the most favourable light, whereas shareholder interests can be quite different.’ Laura Carstensen, the chair of the Audit Investigation Group said:

It is clear that there is significant dissatisfaction amongst some institutional investors with the relevance and extent of reporting in audited financial reports … management may have incentives to present their accounts in the most favourable light, whereas shareholder interests can be quite different.

The Big Four have been criticised for limiting competition in the industry. The Competition Commission has said that companies typically stay with the same auditing firm and this acts to limit competition. One suggestion to encourage competition is to enforce rotation of Auditors. However, the Big Four have said that the market remains competitive, ‘healthy and robust’ and that any enforcement as noted above would not be in the public interest. Other, smaller auditing companies have praised the preliminary report of the Competition Commission. One firm said:

No one solution will achieve market correction, but rather a combination of tendering requirements, encouragement of transparency and dialogue between auditors, companies and investors, and reform of outdated exclusionary practices should provide a backdrop for a healthier FTSE 350 audit market.

The report is not yet final, but the future of the Big Four is somewhat uncertain, especially with the European Commission’s desire to break them up. The following articles look at this industry.

Big Four accountants reject claims over high prices and poor competition The Guardian, Josephine Moulds and David Feeney (22/2/13)
Competition Commission raps Big Four accountants BBC News (22/2/13)
Big Four’s rivals welcome audit shake-up Financial Times, Adam Jones (22/2/13)
UK’s “Big Four” accountants under fire from watchdog Reuters, Huw Jones (22/2/13)
Big Four chastised by Competition Commission The Telegraph, Helia Ebrahimi (22/2/13)
The uncompetitive culture of auditing’s big four remains undented The Guardian, Prem Sikka (23/2/13)
Big Four accountants ‘in closed club on audits’ Independent, Mark Leftly (23/2/13)

The energy sector has a history of criticism with regards to prices and practices. In the past, Ofgem have tried to make the sector more competitive, by ensuring that price comparisons are easier. At the beginning of this year, many of the big six providers announced price cuts, but within the next few weeks, we will see the reverse occurring, as energy prices begin to rise.

British Gas has announced price rises of 6% from 16th November that will affect over 8 million customers by adding approximately £80 per year to the annual dual fuel bill. Npower will also put its prices up 10 days later (8.8% for gas and 9.1% for electricity), creating higher bills for 3 million people.

In January of this year, when we saw energy prices fall, it was not solely due to Ofgem’s findings. We had a relatively mild winter, which reduced the demand for energy and this fed into lower prices. As the winter now approaches once more, demand for energy will begin to increase, feeding into prices that are now higher.

Furthermore, the energy companies have said that a range of external factors are also adding to their costs and putting increasing pressure on them to increase their charges. Npower’s Chief Commercial Officer said:

“There is never a good time to increase energy bills, particularly when so many people are working hard to make ends meet…But the costs of new statutory schemes, increases in distribution charges and the price of gas for the coming winter are all being driven up by external factors, for example government policy”

Significant investment is needed in the energy sector. Energy companies are required to set aside money for maintaining and improving the national grid and investing in renewable energy, such as wind and solar power. In order for the energy companies to fund these investments, more money must be raised and the logical method is to put up prices. However, critics are simply blaming ‘these very big lazy companies’ who are passing ‘above-inflation price rises’ onto already squeezed households.

Part of this is undoubtedly to do with the market structure of this sector. A typical oligopoly creates a market which, under certain circumstances, can be highly competitive, but because of barriers to entry that prevent new firms from entering the market may charge higher prices and be inefficient. Indeed, Ofgem has plans to reduce the power of the main energy providers by forcing them to auction off some of the electricity they generate. The aim of this is to free up the market and make it more competitive.

While only three providers have announced price rises, it is inevitable that the other three will follow. The relative increases will create incentives for consumers to switch providers, but crucial to this is an ability to understand the different tariffs on offer and lack of clarity on this has been a big criticism previously levelled at the energy sector. Indeed, half of UK customers have never switched energy providers. Perhaps this is the time to think about it, firstly as a means of saving money and secondly as a means of putting the energy companies in competition with each other. The following articles consider this market.

Energy price rises: how to switch, save and safeguard your supply The Guardian, Mark King (12/10/12)
Npower and British Gas raise energy prices (including video) BBC News (12/10/12)
Energy price rises? We’re like turkeys voting for Christmas The Telegraph, Rosie Murray-West (12/10/12)
British Gas and Npower to raise prices fuelling fears of a ‘long, cold winter’ for more households Independent
, Graeme Evans (12/10/12)Wholesale prices rise as energy costs jump Wall Street Journal, Sarah Portlock and Jeffrey Sparshott (12/10/12)
British Gas raises gas and electricity prices by 6pc The Telegraph (12/10/12)
Osborne warns energy firms over price hikes Reuters (12/10/12)
Energy price hikes to take effect from next week Independent, Simon Read(13/10/12)

EU environmental legislation is beginning to cause problems in the UK. As it prohibits coal-fired power plants from generating power, they will be forced to close. This means that the UK will be forced to rely more on imported energy, which could lead to price rises, as energy shortages emerge.

Ofgem, the energy regulator has said that the risk of a gas shortage is likely to be at its highest in about 3 years time, as the amount of spare capacity is expected to fall from its current 14% to just 4%. Energy shortages have been a concern for some time, but the report from Ofgem indicates that the predicted time frame for these energy shortages will now be sooner than expected. Ofgem has said that the probability of a black-out has increased from 1 in 3,300 years now to 1 in 12 years by 2015.

The government, however, has said that its Energy Bill soon to be published will set out plans that will secure power supply for the UK. Part of this will be through investment, leading to new methods of generating energy. The Chief Executive of Ofgem, Alistair Buchanan said:

‘The unprecedented challenges in facing Britain’s energy industry … to attract the investment to deliver secure, sustainable and affordable energy supplies for consumers, still remain.’

One particular area that will see growth is wind-farms: a controversial method of power supply, due to the eye-sore they present (to some eyes, at least) and the noise pollution they generate. But with spare capacity predicted to fall to 4%, they will be a much needed investment.

Perhaps of more concern for the everyday household will be the impact on energy prices. As we know, when anything is scarce, the price begins to rise. As energy shortages become more of a concern, the market mechanism will begin to push up prices. With other bills already at record highs and incomes remaining low, the average household is likely to feel the squeeze. The following articles and the Ofgem report considers this issue.

Report
Electricity Capacity Assessment Ofgem Report to Government, Ofgem (5/12/12)

Articles
Power shortage risks by 2015, Ofgem warns BBC News (5/10/12)
Britain faces risk of blackout The Telegraph (5/10/12)
Ofgem estimates tightening margins for electricity generation Reuters (5/10/12)
Electricity shortages are ‘risk’ by 2015 Sky News (5/10/12)
Future energy bills could give customers a nasty shock ITV News, Chris Choi (5/10/12)

In an attempt to kick start the UK housing industry, the government has proposed a series of measures to reduce regulations.

These include relaxing planning restrictions on building extensions to existing homes, shops and offices; relaxing current rules that all new housing developments should include affordable housing (which often makes little or no profit for the builders); an extra £280m for the FirstBuy scheme that provides loans to first-time buyers to raise money for a deposit; and a new “major infrastructure fast track” scheme, whereby developers of large commercial and residential projects currently stalled at local authority planning level can have their applications ‘fast tracked’ by the national Planning Inspectorate.

The government maintains that the measures will increase the flow of new houses coming onto the market by reducing ‘red tape’.

Critics maintain that the problem of the slump in house building has little to do with a lack of availability of new houses or new plots for building. Rather, it is a reflection of the recession in the economy as a whole. The solution, claim critics, is to stimulate the economy and then the new-build property market will recover along with other sectors.

The articles look at the likely success of these latest policy proposals for the property market.

Articles
David Cameron and Nick Clegg unveil plans to kick-start Britain’s ailing house building industry Independent, Oliver Wright (6/9/12)
Planning rules on extensions to be relaxed ‘to boost economy’ BBC News (6/9/12)
Q&A: Housing and planning shake-up BBC News (6/9/12)
Government plans are recipe for planning blight, says LGA BBC News (6/9/12)
Scepticism greets home improvements plan Financial Times, George Parker and Gill Plimmer (6/9/12)
Extensions and loft conversions could add nearly a quarter to the value of homes Independent, Alex Johnson (10/9/12)
Green groups condemn relaxation of house-building planning rules GreenWise (6/9/12)
Construction figures deal blow to government housebuilding plans Guardian, Philip Inman (4/9/12)
House builders sitting on 400,000 undeveloped plots of land with planning permission The Telegraph (5/9/12)
Weak demand hits building sector Independent, Jamie Grierson (4/9/12)
Free up green-belt land for new housing, says Policy Exchange Guardian, Nicholas Watt (13/9/12)
Relaxing Planning Laws Will Damage British Housing Huffington Post, Martin Roberts (7/9/12)
Will David Cameron’s planning reforms create jobs and growth? Guardian, Juliette Jowit (6/9/12)

Data
Economic Data freely available online (see site 30 for links to housing market data) Economics Network
Lending to individuals Bank of England

Rail companies will be permitted to raise average regulated rail fares next year by 6.2%. Not surprisingly, this has been met with dismay and anger by rail travellers, especially long-distance commuters, who could see their annual season tickets going up by several hundred pounds.

Some fares, such as advance tickets, are unregulated. Others, such as anytime, off-peak and season tickets, are regulated by the government. The formula for working out permitted price rises for regulated fares is RPI plus 3%, where RPI is the July annual inflation rate based on the retail price index.

The RPI figure was announced by the ONS on 14 August and was a surprisingly high 3.2% – up from 2.8% in June: see Table 21 in the ONS’s CPI And RPI Reference Tables, July 2012. (Click here for a PowerPoint of the chart on the left.) Hence average fares can rise by 3.2% + 3% = 6.2%.

Rail travellers are angry on three counts:

First, the RPI measure of inflation is generally around 0.5% higher than the CPI measure (which is used for working out public-sector pay increases and the uprating of pensions and benefits). The July figure for CPI inflation was 2.6%.

Second, the extra 3% added on top of RPI means that that rail fares are going up more rapidly than other prices, and incomes too. The reason given for this is to shift the burden of funding the railways from the taxpayer to the traveller.

Third, the formula applies to average fares. Rail companies can raise particular regulated fares by up to 5 percentage points more than the formula provided they raise other fares by less than the formula. Thus some fares are set to rise by 11.2% – including some of the most expensive season tickets.

The government justified the increases by arguing that the higher fares will allow more investment by the rail companies, which could result in lower costs in the future. Nevertheless, two thirds of the revenue from the above-inflation increases will go to the government and only one third to the rail companies.

Webcasts
Inflation shock as rail fares set to soar Channel 4 News, Ciaran Jenkins (14/8/12)
Protests as rail fare price rises announced The Telegraph (14/8/12)
How do our rail fares compare with the rest of Europe? BBC News (14/8/12)
Rail fare increase will make life better, says minister BBC News (14/8/12)
Passenger Focus: Train companies ‘using dark arts’ BBC News, David Sidebottom (14/8/12)

Articles
Rail fares set to increase by 6.2% Financial Times, Mark Odell (14/8/12)
Rail fares set to rise by 6.2% in January Guardian, Gwyn Topham (14/8/12)
Rail fare hike of 6.2% sparks angry reaction BBC News (14/8/12)
Soaring rail fares will do nothing for the recovery The Telegraph (14/8/12)
Commuters plead with Osborne to prevent 10 per cent rise in rail fares Independent, Oliver Wright (15/8/12)
Rail fare rises: how to keep your ticket prices as low as possible Guardian, Mark King (14/8/12)

Documents and information
Fares Review Conclusions 2003 Strategic Rail Authority (June 2003)
Fares Office of Rail Regulation
Fares on National Rail Association of Train Operating Companies

Paul Volcker was Chair of the US Federal Reserve from 1979 to 1987. He was also Chair of the Economic Recovery Advisory Board under President Barack Obama from February 2009 to January 2011. In the webcast and articles below, he reflects on the current state of the world financial system – from regulation, to the euro crisis, to world imbalances, to the system of floating exchange rates.

He argues that global financial systems are vulnerable to breakdowns. What is needed is reform to the system, and for that there needs to be consensus by politicians, regulators and central banks.

But, in the absence of international consensus on some key points, reform will be greatly weakened, if not aborted. The freedom of money, financial markets and people to move – and thus to escape regulation and taxation – might be an acceptable, even constructive, brake on excessive official intervention, but not if a deregulatory race to the bottom prevents adoption of needed ethical and prudential standards.

Perhaps most important is a coherent, consistent approach to dealing with the imminent failure of “systemically important” institutions. Taxpayers and governments alike are tired of bailing out creditors for fear of the destructive contagious effects of failure – even as bailouts encourage excessive risk-taking.

According to Volcker, countries must be prepared to surrender some sovereignty. Policies must be co-ordinated internationally and there must be stronger regulation by international bodies, such as the IMF and stronger concerted action by global organisations, such as the G20.

Left to their own devices, in an era of floating exchange rates, countries may pursue policies that exacerbate global imbalances.

Not so long ago, we were comforted by theorising that floating exchange rates would mediate international adjustments in a timely and orderly way. But, in the real world, many countries, particularly but not limited to small, open economies, simply find it impractical or undesirable to permit their currency to float.

We are left with the certainty, however awkward, that active participation in an open world economy requires some surrender of economic sovereignty. Or, to put the point more positively, it requires a willingness to co-ordinate policies more effectively.

Webcast
Volcker Urges Global Monetary System Overhaul BloombergBusinessweek (31/5/12)

Articles
Is global financial reform possible? Guardian, Paul Volcker (6/6/12)
Volcker Urges Global Financial System Overhaul After Crisis BloombergBusinessweek, Robyn Meredith and Shamim Adam (31/5/12)

EDF, one of the big six energy retailers in the UK, has agreed to pay out a record £4.5m. £1m of this will go to funding an energy advice centre; the rest will go to providing £50 each to 70,000 ‘vulnerable customers’ who struggle to pay their bills and who receive the government’s warm home discount.

The agreement was made with Ofgem after an investigation into mis-selling, both on the doorstep and over the phone. Customers were persuaded to switch energy suppliers with the promise of savings on their bills. As the FT articles states:

Ofgem found that EDF’s sales force did not always provide complete information to customers on some contract terms, or on the way in which their monthly direct debits had been calculated. In some cases, telesales agents claimed savings without knowing whether they were accurate for the specific customer on the call, the regulator said.

Ofgem did not accuse the company of directly sanctioning such practices, but rather of weak monitoring and control of its sales force’s actions.

The £4.5m payment is in lieu of a fine. Consumer groups have welcomed this, preferring the company to pay compensation to a fine, which would have simply increased Treasury funding.

It is the first settlement in a broader investigation into mis-selling, involving four of the six major suppliers.

Articles
EDF to pay out £4.5m in mis-selling case Financial Times, Guy Chazan and Hannah Kuchler (9/3/12)
EDF agrees to pay £4.5m misleading sales ‘fine’ Guardian, Lisa Bachelor (9/3/12)
Is it a fine? Is it a penalty? No, it’s EDF’s mystery Ofgem payment Management Today, Rebecca Burn-Callander (9/3/12)
‘Misleading claims’ cost EDF a £4.5m payout from watchdog , Independent, Tom Bawden (10/3/12)
EDF Energy agrees to pay a £4.5m ‘fine’ BBC News (9/3/12)
EDF Energy agrees to pay a £4.5m ‘fine’ BBC News, John Moylan (9/3/12)
More energy payouts could follow EDF’s £4.5m The Telegraph, Kara Gammell (9/3/12)

Ofgem ruling
EDF energy agrees to invest £4.5 million to help vulnerable customers following Ofgem investigation Ofgem

Petrol prices have been a bone of contention for some time. With household incomes remaining low and the cost of living rising, the fact that average petrol prices have reached their highest level of more than 1.37p per litre on average will undoubtedly put growing pressure on the approaching budget.

There have already been calls for the Chancellor to reduce fuel duty and with this latest data, the pressure will only mount. The problem is, if fuel duty does fall, so will tax revenues and as one of the Coalition’s key objectives has been to cut the budget deficit, this could pose further problems. Even the calls to cut VAT on fuel will also put a dent in the budget deficit.

Although everyone is undoubtedly feeling the effects of these higher prices, the key thing with petrol is its elasticity of demand. Whether the price of petrol was 0.90p or 1.37p per litre, I continue to buy the same amount. Therefore, for me, the price elasticity of demand for petrol is highly inelastic – at least between those prices. After all, if the price increase above say £3 per litre, I might think twice about driving to work!

So what has been driving this increase in prices? Petrol prices are hugely dependent on the cost of oil and on the demand for any product that uses fuel. With growing demand from countries like India and China, as they continue to develop and grow very quickly; the continuing concerns with Iran’s nuclear programme and the political problems in the Middle East, oil prices have been forced up. The future trend in prices will depend on many factors, not least whether or not there is any change in fuel duty in the 2012 budget and whether something like a regulator is introduced to monitor increases in fuel prices. This is definitely an area to pay close attention to in the coming months.

Petrol prices reach record high Independent, Peter Woodman (3/3/12)
Petrol prices hit record high with further rises expected Guardian, Hilary Osborne (2/3/12)
Appeak to regulate petrol prices This is South Wales (3/3/12)
Plea to slash duty as fuel costs soar to record high Scotsman, Alastair Dalton (3/3/12)
Petrol prices hit record high The Telegraph, David Millward (2/3/12)
Diesel prices predicted to reach 150p as petrol hits new record Guardian, Terry Macalister and Hilary Osborne (2/3/12)