Fuel Duty

October increase could backfire

Fuel duty on petrol and diesel increases by 1p a litre on Friday 1 October

30 September 2010

Fuel duty on petrol and diesel increases by 1p a litre on Friday 1 October, taking the total fuel duty burden to 58.19p a litre.

This simply continues the folly of creating more pain for less gain The deputy governor of the Bank of England has suggested people should dig into their savings to boost the economy, which is difficult as 66% of drivers are already cutting back on expenditure or journeys due to the high cost of fuel. This year's 3.24p-a-litre increase in duty with VAT will have siphoned a further £82.56 out of the budget of a two-car family – double the £41 average increase in council tax.

Overall fuel consumption has fallen significantly due to the effect of recession and tough household and business finances.

Comment

"This fuel duty increase highlights a series of contradictions that make it hard for drivers to accept. Petrol and diesel prices today are at least 10p a litre higher than this time last year, already generating an extra 1p-a-litre VAT windfall for the Treasury. Hence we question why this fuel duty rise is needed," says Edmund King, the AA's president.

"Pushing the petrol price almost to the level of the 2008 record high simply continues the folly of creating more pain for less gain. This increase could backfire as it will hinder economic growth."

Fuel duty increases since 2007


21 March 2007 – duty = 48.35p/litre

1 October 20072p duty increase = 50.35p/litre

12 March 2008 – fuel duty rise deferred to October

24 November 20082p duty increase = 52.35p/litre
(Implemented 1 December – VAT dropped by 2.5% for a year)

1 April 20091.84p duty increase = 54.19 p/litre

1 September 20092p duty increase = 56.19 p/litre

24 March 2010 – In the Budget the Chancellor decides to stagger an 'inflation + 1p' a litre increase in fuel duty (2.76p a litre) in three stages: 1p in April, 1p in October, 0.76p on 1 January 2011)

1 April 2010 – 1p duty increase = 57.19 p/litre

1 October 2010 – 1p duty increase = 58.19p/litre (The additional 0.76p a litre in duty will be added on 1 January 2011)

Impact on drivers

  • With 17.5% VAT, the full amount added to the pump price will be 1.175p a litre
  • This will add 59p to the cost of filling a typical 50-litre tank
  • The monthly cost of petrol for a two-car family will rise by £2.49
  • Once all three stages of the 2010 fuel duty increase are implemented (2.76p), they will have added, with VAT, an extra £1.62 to the cost of a tank of fuel and £6.88 to the monthly petrol costs of a two-car family.

Impact on tax-take

  • Based on a current average UK petrol price of 115.83p a litre, the 1 October fuel duty increase will raise the price to 117.01p. The tax-take will be 75.62p a litre, or 64.6% of the pump price.
  • The 1 October and 1 January increase in fuel duty, with VAT, will add 2.07p a litre, raising the current average pump price to 117.9p a litre. Of that, 58.95p would be fuel duty and 17.56p VAT, giving a total tax-take of 76.51p per litre of petrol or £1,042.07 per tonne.
  • All three fuel duty increases in 2010, with VAT, will bring the Treasury an extra 3.24p a litre or £44.13 per tonne.
  • Between 2008 and 2009, petrol consumption in the UK fell 5.4%, from 16.068 million tonnes to 15.194. At that level of consumption, the 16.068 million tonnes would generate an additional £709.08 million tax from the three fuel duty increases. However, the reduced petrol consumption of 0.874 million tonnes would lose the Treasury £910.77 million in total fuel tax from a litre of petrol, leaving the Government £201.69 million pounds worse off.

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30 September 2010