Fuel duty

AA calls on Government to tackle inflated fuel costs not hike duty

AA calls on Government to tackle inflated fuel costs not hike duty

AA calls on Government to tackle inflated fuel costs not hike duty

Treasury receipts from road fuel duty are on course to match last year’s total – the second highest ever. This is despite duty being frozen for 20 months and drivers being burdened by record pump prices.

The AA argues that, rather than adding a further 3.6p duty with VAT to the cost of a litre of petrol and diesel in January, the Chancellor’s Autumn Statement on Wednesday should cancel the increase and look to boosting its tax-take by tackling the bloated cost of petrol.

Not only would a further duty freeze help struggling car-dependent UK families and businesses, but persuading the fuel industry to trade more fairly with consumers would reverse this year’s haemorrhaging of petrol sales and boost duty receipts.

  • 2011/12 fuel duty receipts second highest ever
  • 2012/13 receipts as strong but held back by record pump prices
  • AA calls on Government to tackle inflated fuel costs not hike duty

Fuel duty receipts

In the last financial year (2011/12), latest HM Revenue and Customs statistics show that the Treasury received £26.80 billion from fuel duty. This is 1.7% below the record of £27.26 billion set the year before. In 1990/91, the Treasury received £9.63 billion from fuel duty.

Fuel duty receipts, financial years: 2007/8 - £24.91bn, 2008/9 - £24.62bn, 2009/10 - £26.20bn, 2010/11 - £27.26bn, 2011/12 - £26.80bn.

Wholesale prices

Since April, consumers have suffered from two wholesale petrol price bubbles that drove the average UK pump price of petrol to a record of 142.48p a litre in the spring and then 140.23p in the autumn. Wholesale prices collapsed by the equivalent of 10p a litre (including VAT) after each surge but, a month later on both occasions, average pump prices had fallen only 4p a litre.

Lower sales

HMRC figures for April to October show that, compared to the same period last year, 527 million fewer litres of petrol (4.5%) have been sold*. With duty at 57.95p a litre, the reduction is worth £305.4 million in lost tax.

Despite this, fuel duty receipts so far this financial year are only 1.2% behind where they were a year ago.

Diesel sales up

The growth and resilience of the fuel duty tax-take is based largely on the UK’s diesel consumption, which fell to 14.81 billion litres between April and October 2009 after the credit crunch but has recovered to 15.41 billion litres over the same period this year.

VED reform

Greater diesel consumption, falling petrol sales and flat-line Vehicle Excise Duty (VED) revenue have pushed the Government to consider a reform of VED. It sees “continuing improvements in vehicle fuel efficiency” (Budget 2012) as the threat to tax from motoring, without recognising that inflated pump prices are already draining the potential for further tax from duty. 

New car sales

Supporting this view, AA research finds that while sales of new cars to businesses have remained largely consistent at around 99,000 over the past three years and last year’s new car sales to fleets rose 4.7 per cent to back above one million, first registrations among private cars continued to fall – down 14% in 2011 compared to 2010  according to the SMMT.

Diesel sales, and therefore duty receipts, have been boosted by a surge in new sales of commercial vehicles, up 15.6% in 2010 and 17.6% in 2011 (SMMT).

Unlike private motorists who have to absorb high pump prices or cut back on car use, many delivery companies and hauliers use surcharges to pass higher diesel costs and taxes straight on to the customer. For instance, January’s nearly 4p duty increase with VAT will add 0.7% to the invoices of one delivery firm and another added 6.3% to November invoices.

Private mileage down

In contrast, higher petrol costs have forced private drivers to reduce mileage. In the first quarter of 2011, HMRC figures show that monthly petrol sales fell below 1.6 billion litres for the first time ever. They recovered to an average of 1.65 billion litres for the rest of 2011 but have fallen back below 1.6 billion for all but one month of 2012 so far.

Arguably, the Government would rake in more revenue if it tackled the causes of stubbornly high fuel prices in the UK

Edmund King, AA president


“The Chancellor should announce a fuel duty freeze. A freeze in duty will not undermine Treasury tax receipts as the previous above-inflation increases in duty and higher VAT have more than compensated. Arguably, the Government would rake in more revenue if it tackled the causes of stubbornly high fuel prices in the UK - allowing cash-tight businesses, lower-income families and the 28% who restrict their spend on road fuel to use their vehicles as they need rather than as they can afford,” says Edmund King, the AA’s president.

“This AA research shows that the tax-take from fuel duty is pretty healthy and would be even better were it not for record fuel prices. The motorist is not to blame for duty receipts failing to reach their full potential and should not be punished for having to cut back on car use or for buying a fuel-efficient car. Neither is that unfulfilled tax potential an excuse for possible hikes in VED, or even road tolls. If the Chancellor announces higher motoring tax take on Wednesday it is likely to backfire on the economy.”

(3 December 2012)


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