The Chancellor Should Abandon 2p Fuel Tax Increase

11 February 2008

The Chancellor should abandon his plans for a 2p litre fuel duty hike at the March 12 Budget as he has already made an extra £4bn in increased revenues from fuel in the last 12 months, according to the AA today.

The AA today publishes new figures which outline the Chancellor's windfall from fuel taxes over the last year:

  • An Excise Duty increase of 2 pence per litre plus VAT would give the Chancellor £1.26 billion pounds.
  • However the additional sum of Petroleum Revenue Tax paid by the oil producers in the current tax year is £3.95 billion.
  • New VAT revenue from higher fuel prices in 2007 brought in an extra £450 million.

Hence the Chancellor could afford to abandon the proposed 2p increase at the March 12 Budget as his £4 billion windfall means he would still be approximately £3bn better off due to these additional taxes.

Commenting, Edmund King AA president, said:

"The AA analysis shows that the Chancellor has already bagged an unexpected windfall of more than £4 billion from motorists and the oil industry in the last twelve months and therefore even if he scraps the threatened 2p litre increase he would still be £3 billion better off. The record pump prices are already hitting those on low incomes, rural, disabled and many car dependent motorists, so an extra increase would be unjust, unfair and unnecessary.

"Only 6 months ago the Chancellor added 2p per litre plus VAT to the price of fuel, two price hikes within 6 months would be totally unacceptable.

"There is a broad coalition against this increase from business groups, freight organisations, farmers, MPs and indeed motorists. The Chancellor needs to listen to what the voters are saying and scrap this proposed tax increase."

Notes to Editors

  1. Early Day Motion, Hoyle, Lindsay - "That this House notes that the price of petrol and diesel is set to rise again in April of this year; further notes that fuel prices are over the 100p per litre mark and continue to rise; recognises that this places a significant financial burden on those who are highly dependent upon their car, those on low incomes and those who live in rural areas where public transport is inadequate; and calls on the Chancellor of the Exchequer to scrap the increase in fuel duty."
  2. A letter to the national press opposing the proposed increase has been signed by representatives from the Automobile Association, Freight Transport Association, Road Haulage Association, British Association of Removers, British Chambers of Commerce, Confederation of Passenger Transport, Federation of Small Businesses, Forum of Private Business, National Farmers Union, Petrol Retailers' Association and the RAC Foundation. (see copy below)
  3. FTA and RHA will be meeting the Chancellor on Monday 11 February.
  4. The AA President has written to the Chancellor and Shadow Chancellor on this issue.
  5. Petroleum revenue tax is currently levied on the net profit of sales of offshore North Sea oil and gas after allowable expenditure on the cost of extraction, initial treatment of the raw products, transport to the nearest landfall and certain research and exploration costs.

AA fuel price briefing

  • Prices still hovering at record levels: – petrol 104.11 pence per litre, diesel 109.19 (as at 6 Feb 2008)
  • This time last year – petrol 87.32, diesel 91.82
  • Difference – petrol 16.79, diesel 17.37
  • Extra costs: 50-litre petrol tank load = £8.39 more to refill
  • Drain on monthly family budget (two petrol cars) = £35.98 more than this time last year (Typical monthly fuel consumption 107.17 litres X £0.1679 X two cars)

Supermarket prices

  1. Supermarkets are one of the main reasons UK petrol prices are the most competitive in Europe. Strip out the tax and the product price is amongst the cheapest in western Europe.
  2. Rising oil and wholesale fuel prices could only be absorbed by supermarkets for so long. Following the Christmas battle for customers, they let prices rise to levels that better reflect general market prices.
  3. With neighbouring fuel stations matching their prices, a price rise ripples out and inflates the impact.
  4. Asda have for many months pitched themselves as the cheapest supermarket for fuel – hence 1.4 p/ltr cheaper than nearest rival.
  5. North England and Scotland have greater concentrations of Asda and Morrisons petrol stations and this has helped keep regional prices lower in those areas. (proximity to oil refineries is the other factor).

Where now?

  1. Oil industry experts predict global increases in the cost of crude until summer 2008.
  2. Prices are very high – $57 a barrel when chancellor announced three fuel duty rises in March 2007 having peaked to over $100 around Christmas 2007.
  3. The US government's Energy Information Administration is predicting even higher road fuel prices in the spring – we're in for it for the long haul.

Causes of high prices

  • Background: high energy demand from China and India
  • Intermediate: weakness of dollar – oil traded in dollars – producers need to counter reduced income, and raise prices.
  • Also weak dollar sent market traders into commodities like oil, and speculation is adding to market pressures.
  • Short-term: refinery bottlenecks, political instability in oil-producing countries, fluctuating stocks and reserves in the US, harsh/mild winter.

Letter to the Daily Telegraph


At 50.35p per litre, UK fuel duty for diesel and petrol is already the highest in Europe. Indeed UK diesel duty is double the EU average rate of 25p per litre. The Chancellor now plans to increase this by 2p per litre from 1 April. Such an increase will generate further serious difficulties for the transport and forecourt industries, business drivers, those dependent on the car, and for businesses or individuals in remote or rural areas with no alternative transport options.

During the last eighteen months the whole of UK industry has experienced increased costs as a consequence of higher oil prices on the world market. At a time when we are suffering from the joint threats of an economic slowdown and increasing inflation the higher costs of transporting goods and services resulting from price rises for fuel have impacted on every single company throughout the UK, and thus on their customers.

Clearly the Chancellor can have little or no influence on the world price of oil, although he enjoys unbudgeted income when it rises. However, he is responsible for the greater part of the cost of diesel and petrol which is made up of fuel duty and VAT. These taxes constitute almost two thirds of pump prices - for every £1.05 per litre the Government collects 66p.

In the interests of every company moving goods and their customers, and of the economy in general, we the undersigned call on the Chancellor to recognise these problems and to abandon his plans for a 2p per litre increase in fuel duty from 1 April.

Yours faithfully

Theo de Pencier, Chief Executive, Freight Transport Association
Roger King, Chief Executive, Road Haulage Association
Edmund King, President, Automobile Association
Tony Richman, British Association of Removers
David Frost, Director General, British Chambers of Commerce
Simon Posner, Chief Executive, Confederation of Passenger Transport
Chris Glen, Transport Policy Chairman, Federation of Small Businesses
Phil McCabe, Forum of Private Business
Richard Macdonald, Director-General, National Farmers Union
Sheila Rainger, Acting Director, RAC Foundation
Ray Holloway, Director, Retail Motor Industry Federation


11 February 2008