Fuel Price Crisis

AA President writes to the Chancellor

27 May 2008

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.

The AA President Edmund King has written to the Chancellor of the Exchequer Alistair Darling MP making the following points.

The AA was pleased that the government agreed to defer the 2p per litre increase in fuel prices at the budget in March.

Since the budget we have asked the AA/Populus Panel of 17,500 motorists how the high cost of fuel is affecting motorists. The polling took place between 14 March and 9 April and the results reflect concerns about the volatility of the oil price, its impact on fuel prices at the pump and the onward impact this has on households and the economy at large.

Since then the pump price of diesel has gone up by about 9 pence per litre.

AA/Populus panel results

  • 64% of members had made a conscious decision to drive less by car or had cut back on other areas of spending, or had done both.
  • 37% of the entire sample had cut back on car journeys
  • 51% of over 65s had cut back on car journeys
  • 17% of women had cut back on weekly shopping

Abandon planned fuel duty rise

In early 2007 oil was just over $50 a barrel - it has now reached $135 and the AA feels that the decision, taken in this year's budget, to increase fuel duty in October should now be abandoned as all indications are that prices will remain high.

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.

In addition to abandoning planned fuel duty rises the AA believes that further thought should be given to the possibility of introducing a 'fuel duty stabiliser', a mechanism to help ensure that public finances, households and business can be protected from unwelcome price fluctuations.

A fuel Price watchdog

It is often argued that when oil goes up pump prices follow quickly whereas when oil dips pump prices are slow to fall.

Motorists are far removed from the myriad of factors that affect fuel price at the pump - they have no control or influence and feel helpless when global events or markets affect a product that the vast majority depend on for their everyday lives.

Whilst the fuel forecourt itself may be a healthy and competitive market motorists feel that the large profits made by oil companies, refiners and speculators are made at their expense and that this side of the business is both complex and lacking in transparency.

Who is looking after the UK's business and consumer interests to ensure fair play in the oil and fuel markets? The AA believes it is now time for a Fuel Price Watchdog which can take a global, national and local view on the price and supply of this vital commodity.

Approved Mileage Rates

On a linked matter the AA is still concerned about the impact high fuel prices have on the HM Revenue & Customs Approved Mileage Rates. At its current level the 40p per mile allowance is insufficient to cover the cost for many users and the rate should therefore be increased in line with the escalating price of fuel, as has happened in the US over the last three years.

Road Tax

The AA has been generally supportive of a Graduated VED system, however we do have concerns about some of the changes announced in the last budget.

Until budget 2008 VED changes aimed at larger more polluting vehicles had not been retrospective. For example, band G was introduced only for cars first registered on or after 23 March 2006.

AA Members have expressed concern that vehicles they purchased before budget 2008 will be hit with VED increases over the next two years but surely the purpose of graduated VED was to send out a message to motorists to help influence vehicle purchasing decisions.

A 'retrospective' tax does not send out such a signal but hits many motorists who cannot afford to change their vehicles.

The AA also feels that government could do more to ensure that user-friendly information regarding changes to VED over the next few years is published and promoted widely. We're concerned that without such action some motorists may be buying cars today that they are not aware will fall into much higher VED bands in 2009 and 2010.

AA monthly fuel price report »

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27 May 2008