Misery for drivers as fuel duty rise kicks in
Drivers face a tough time ahead following the postponed 2p increase in fuel duty coming into force.
The increase, which was originally planned for last April, has been postponed twice in light of rising petrol prices. And despite Gordon Brown last July pledging not to increase fuel duty for a full 12 months, this will be the second hike since then.
1 April's increase will mean that as much as 71% of every £1 spend on fuel will be pocketed by the Treasury, according to petrolprices.com.
Fuel tax is made up of a fixed duty, rising from 1 April by 2p to 54.19p, which along with VAT is added to the raw cost of fuel.
The increase is expected to spark a jump in petrol prices, as retailers are unlikely to absorb the extra cost. The AA estimates that pump prices will increase this year by another 2.12p as a result of the tax change, with the cost of filling a typical tank with unleaded petrol 5.53p more expensive per litre compared to the start of the year.
Edmund King, president of the AA, accuses the government of “conveniently forgetting” about the impact of the credit crunch on drivers. Last year saw fuel prices rise to record levels, with petrol peaking at 119.5p and diesel at 133.1p in July.
Although petrol prices are now at much lower levels, motoring groups have been putting pressure on the government to scrap the 2p fuel duty increase. Adrian Tink, motoring strategist at the RAC, argues that cheaper crude oil costs are still not being fully reflected at the pumps.
“Motorists are being penalised at the pumps despite the cost of oil remaining around $50 a barrel,” he adds.
Higher petrol prices could eventually feed through to all consumers, with businesses forced to pass on increased running costs onto their customers.
"All services will be affected as businesses attempt to absorb increased running costs, and consumers increasingly find that public transport and delivery of goods will become more expensive,” warns Will Thomas, head of motor insurance at Confused.com.
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.