Calls for variable fuel tax
Chancellor Gordon Brown should introduce a variable tax on fuel to offset record oil prices, the RAC Foundation urges today.
The motoring group argues that with duties and taxes making up three quarters of the petrol pump price, the government has the power to reduce the financial burden on consumers by cutting fuel duty when oil prices are high.
However, a Treasury source rejected the proposed mechanism as being “unwieldy, difficult for the public to understand” and doing little for stability, and warned the cost to both government and industry would be significant.
According to the RAC Foundation, the Treasury collects £22.1 billion a year from fuel duty, in addition to the £5.6 billion from VAT on fuel. But it warns that this is a tax that is hitting many poor and rural families who depend on their cars.
“Current hikes are fuelling inflation and hitting those low-income and rural car dependent motorists hardest,” said executive director Edmund King.
“The chancellor could and should introduce a mechanism whereby fuel duty is reduced if world prices hit a certain level and increased if they fall below another level. The Treasury would still benefit from increased VAT returns if prices go up.”
In January, Mr Brown froze fuel duty for a year in response to rising oil prices, but a Treasury spokeswoman told politics.co.uk that the government was working to bring down the price of oil as the most effective means of cutting petrol prices.
“The best way of dealing with high oil prices is by working to reduce oil prices, not by making changes to the road fuel duty and VAT systems, which offer no guarantees of reducing prices at the pumps, and which in any case do nothing to help all the other industries, businesses and households affected by high oil prices,” she said.
Liberal Democrat transport spokesman Tom Brake was equally critical of the proposal, although he called for fuel duty to be scrapped altogether.
“The RAC are wrong to call for variable fuel duty. The best and most transparent solution would be no fuel duty or road tax combined with road user pricing based on location, congestion and vehicle emissions,” he said.
“What Britain’s motorists need is a fair tax, not a fuel tax.”
