Tories call for fuel duty to soften blow of petrol hikes
The Conservative Party has proposed a plan to soften the blow of rising fuel prices on families by offsetting expensive petrol with lower fuel duty.
Shadow chancellor, George Osborne, says the Party’s ‘fair fuel stabiliser’ would reduce duty when fuel prices go up, and raise it when fuel prices go down.
He claims that if this measure had been introduced at the 2008 Budget, fuel would now be 5p per litre cheaper - shaving £3.50 off a tank of fuel for a Ford Mondeo.
This would have saved the average household more than £90 in fuel costs, and kept inflation below the 3% mark, according to Osborne.
Fuel prices have increased dramatically over the last year from under $70 a barrel to more than $130 a barrel. According to The AA, the average price of petrol is 119p a litre, or 132p for diesel.
Fuel duty is to rise in October, despite soaring fuel prices. However, Gordon Brown has hinted that the 2p per litre rise would be looked at “carefully” over the next few weeks, He has also hinted of new measures to be introduced at the pre-Budget in the autumn.
The Conservative Party says the current fuel duty system adds to the rising cost of living when fuel prices are rising instead of cushioning the blow because it rises every year regardless of what happens to the price of oil.
In addition, because VAT is charged at the standard rate of 17.5%, as petrol rises the VAT levied on it increases as well.
About 60% of the current retail price of fuel is accounted for by tax, according to Petrolprices.com. For example, unleaded petrol at 115p per litre is typically made up of 50.35p in fuel duty, 17.13p in VAT, 37.35p for the cost of the product, and 10.17p for delivery and retail.
Osborne says: “Any reform should help families when the cost of living is rising. We should be putting money aside in good times to help in difficult times.
“The current system adds to the cost of living when times are difficult, instead of putting money aside in good times so that government can help to cushion the blow in difficult times.”
However, the government has questioned whether the plan would leave a black hole in public finances.
The Tories will now consult on its ‘fair fuel stabiliser’ plan, with the closing date for responses set at 19 December 2008.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).