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Written Parliamentary Questions: 13th July 2006

Oil Prices
Q:To ask the Chancellor of the Exchequer what oil price his Department predicts for each of the next 10 years. (John Hemming)
A:The Treasury does not make detailed predictions of future prices. In projecting the public finances, the Treasury adopts an oil price assumption based on the average of independent forecasts, which is set out in PBR and Budget documents. This assumption was audited by the Comptroller and Auditor General in December 2005, when he concluded that:

"There is no clearly better method available for use in the future, though large uncertainties in predicted oil prices remain"

(http://www.hm-treasury.gov.uk/media/F5D/46/pbr05_nao_508.pdf).
(John Healey, Financial Secretary, HM Treasury)

Single Status Agreement
Q:To ask the Secretary of State for Communities and Local Government if she will ensure that there is no aggregate national cash limit to the capitalisation of back payments due to local authority staff arising from the single status agreement. (John Hemming)
A:Revised guidance on the policy and procedures for capitalisation directions was issued on 26 June. This is available from the Department for Communities and Local Government website at:

http://www.local.communities.gov.uk/finance/capital/cappolpro.pdf
(Phil Woolas, Minister of State (Local Government), Department for Communities and Local Government)

Comments

Chris Vernon said…
The document supplied in response to the oil price question is interesting. It seems to suggest that there is a systemic failing in the way five year oil price assumptions are generated. The system could not have allowed the rapid ramp up in prices we've seen over the last few years to be forecast.

The method is:
The oil price will be based on the average of independent forecasts for one year ahead. If the average of independent forecasts shows a fall in the oil price, that price in real terms will be used for the remainder of the five year forecast period. If the average of independent forecasts for one year ahead shows a rise, then the previous convention that oil prices would be close to their current levels in nominal dollar terms over the coming year,41 and remain flat in real terms thereafter, will be adopted.

If I understand it correctly even if the best information available suggested oil prices were going to double over the next 5 years, all that the treasury would assume over those five years would be one year's price increase then remaining flat in real terms for the following 4 years.

The treasury is systemically blinkered to the forecast price rises global peaking of oil will inevitably bring.

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