AA Budget Brief 2008

"2p or not 2p" budget is test for the Government

11 March 2008

a government red box The "2p or not 2p" budget tomorrow is a test of whether the Government is in touch with the people and understands the real impact of high fuel prices on families and the economy, according to the AA. The AA has suggested that the Chancellor should, at the very least, defer the threatened two pence per litre duty increase tomorrow.

Commenting on the AA's publication of Ten Key Budget Statistics, Edmund King, AA president, said: "This "2p or not 2p budget" will be a test of whether the Chancellor has listened and understands the hardship record fuel prices bring. At the start of last year oil was just over $50 a barrel and it has now reached over $100. The AA feels that the decision, taken in the March 2007 budget, to increase fuel duty over the next three years, took little account of the volatility of the oil market. The last third of 2007 saw around £1 billion more spent on petrol, with resultant 'windfall' VAT receipts, compared to the same period in 2006.

AA President Edmund King "Whilst the Government argues that fuel duty, as a proportion of pump price, is historically low, this takes no account of the pump price which is now 60 per cent higher than a decade ago. Vehicle fuel and transport costs form the biggest part of household budgets. As fuel cost is the largest element, people and business are feeling the pain of high prices.

"The AA believes that the scheduled fuel duty rise of two pence per litre (plus VAT) should, at the very least, be deferred until the oil market stabilises and the economic picture for 2008 is clearer. Fuel price instability is damaging to people and the economy and, whilst this is largely influenced by the market, the AA believes that the Government can do more to help people and business weather the financial damage and uncertainty high prices cause."

10 key Budget Statistics

1. Fuel Price

Petrol is 17.11 pence per litre more expensive than at the last Budget, diesel 20.18 pence.

This means petrol for a typical family with two cars is costing £36.67 more per month than at the time of the 2007 Budget 1. The price of UK road fuel has risen 60 per cent in the past 10 years.

2. Fuel duty

A 2.35 pence-per-litre increase in fuel duty and VAT will add £1.18 to the cost of filling the typical 50-litre fuel tank.

From petrol sales alone, it will generate an extra £1,559,567 in revenue for the Treasury per day. Nearly 65 per cent of the litre-price of petrol is tax, in duty and VAT.

3. Tax from UK road users

The Government collects £45 billion a year in tax from UK road users and spends £7.5 billion on the roads2.

The £45 billion includes £23.7 billion in fuel tax, £5 billion in vehicle excise duty and £6.8 billion in VAT on fuel.

4. Highest Fuel Duty in Europe

The UK levies the highest fuel duty in Europe. The closest neighbour, Germany, takes nearly 10 per cent less in fuel duty 3.

5. Carbon dioxide

The average car is producing a fifth less CO2 than 10 years ago, according to Government figures.

6. 28% more cars, 1% more CO2

Carbon dioxide emissions from passenger cars are only one per cent higher than they were 10 years ago – with 28 per cent more cars (6.1 million) on the road4.

In 1999, the last year of the fuel tax escalator, carbon dioxide emissions from passenger cars were five per cent higher than five years previously.

7. Growth in diesel sales

Improved car and fuel technology, and the 'dash for diesel' have been largely responsible for the reduction in CO2 emissions - despite more cars on the road.

In 2001, there were 3.3 million diesel cars on UK roads and, in 2006, 6.1 million.

8. Large vehicles

Punitive taxes on larger vehicles can penalise large families with relatively little impact on CO2.

London motorists average 3,055 miles per year (4,916 km) and driving a Band G 'gas guzzler' in London, producing 226 g/km CO2, emits 1.111 tonnes in a year. Motorists in large towns average 5,746 miles annually (9,247 km) and driving a Band B 'environmentally-friendly' car, producing 119 g/km CO2, emits 1.1 tonnes in a year5.

9. Mileage allowances

A supermini averaging around 10,000 miles per year costs around 45 pence per mile to run, a small family car 58 pence. The tax-free threshold for drivers using their own car for work and claiming mileage expenses is 40 pence up to 10,000 miles.

The allowance was set in 2002, when petrol in the spring cost 76 pence per litre. In 2006, 2007 and 2008, the USA's Inland Revenue Service raised the mileage allowance for workers who use their own cars on business to reflect the higher cost of road fuel.

10. Volunteer drivers

Reducing the tax-free mileage allowance threshold from 10,000 miles to 6,000 miles for rural and long-distance business and community health drivers who use their own cars for work will erode their pay by £600.

If the higher-mileage allowance drops to 25 pence per mile, volunteer drivers who are currently getting 34-36 pence per mile will have to reduce their claim to avoid invalidating their 'non-profit' charity insurance – in effect having to pay up to £600 a year for the privilege of volunteering their own time.

Notes to Editors

Please call 01256 493493 for AA comment on the Budget following the Chancellor's speech at lunchtime on Wednesday

1 The UK average price of petrol on Sunday evening was 106.13 pence per litre, diesel 112.47. At the same time last year, petrol cost 89.02 pence per litre and diesel 92.29.

2 http://www.rua.org.uk/roadfile0708.pdf


4Transport Statistics Great Britain 2007, Table 3.8


Other related AA documents

History of tax and investment - 1993 to 2008
A history of fuel duty/vehicle excise duty (car tax) and government investment in transport - recently updated

AA questions government on "missing" transport funds
In 1999 Gordon Brown committed to putting any "real terms" fuel duty increases into a ring-fenced fund for improving public transport and modernising the road network.

Latest AA monthly fuel price report
Regional variations, national averages and international comparisons

The Chancellor should abandon two pence fuel tax increase
AA analysis showing the Chancellor's windfall from fuel taxes over the past year, fuel price briefing and letter to the national press signed by the AA President and representatives of 10 other organisations.


11 March 2008