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FTA: Fuel Duty Increase Must Be Scrapped

The Freight Transport Association says that in today’s Budget the Chancellor must announce that he is to scrap or defer his proposal for a 2p per litre increase in fuel duty from 1 April. The FTA says that the increasing price of oil on the world market has created record high prices of diesel for lorry operators and the Government must not load more pain on industry by increasing fuel duty.

During February an alliance of business and motoring representative groups told the Chancellor that the higher cost of transporting goods and services resulting from price rises in fuel had impacted on every single company throughout the UK, and thus on their customers.

Members of the alliance include the Freight Transport Association, Road Haulage Association, Automobile Association, British Association of Removers, British Chambers of Commerce, Confederation of Passenger Transport, Federation of Small Businesses, Forum of Private Business, National Farmers Union, Petrol Retailers’ Association and the RAC Foundation.

In its formal submission in advance of the Budget, the FTA called for:

Scrapping of the 2p per litre fuel duty increase proposed for 1 April.

Consideration of the option to decouple duty on fuel used in heavy lorries from that for other road users.

Abandoning of plans for above inflation increases in gas oil duty (fuel for railways).

A commitment to extend the freeze in lorry Vehicle Excise Duty for 2009.

The introduction of a time-based charge (vignette) on foreign lorries operating in the UK.

Abandoning of plans for an aviation tax on air freight.

The FTA quotes the following facts on taxation and truck operating costs:

The Government collects £5.7 billion in diesel duty and lorry VED from HGVs each year.

The Government collects £41 billion in tax each year from all road users. By contrast it spends just £8.3 billion a year on national and local roads infrastructure.

A 2p per litre increase in fuel duty would cost industry an extra £280 million per year.

UK diesel duty is still double that of the rest of Europe. It needs to fall by 18 per cent litre to achieve parity with France.

Abandoning plans to increase duty on diesel and petrol from 1 April would cost £1,050 million. Offsetting this cost, the Chancellor has had a tax windfall of £450 million in additional VAT revenue from higher world oil prices during 2007 as well as higher receipts from North Sea oil taxation.

Duty represents 57 per cent of the cost of a litre of bulk diesel (excluding VAT).

Fuel costs represent 35 per cent of the costs of running a 44 tonne lorry.

World oil prices reached new all-time highs of $103 per barrel in early March 2008.

Bulk diesel prices have risen by 24 per cent since March 2007. This alone has increased HGV operating costs by 7 per cent (or £7,500), based on a 44 tonne artic running 70,000 miles per year.

Petrol Retailers also say that it’s a bad time for the fuel duty increase.

“The increased tax revenue from current high fuel prices means that there is no justification for the two pence per litre fuel tax increase, and this must now be cancelled or postponed by the Chancellor”, according to Ray Holloway, Director of the RMI Petrol Retailers Association (PRA).

The tax increase scheduled for Tuesday 1 April 2008 was set in place in last year’s budget. Since then, the economic situation has changed.

Holloway explains: “Investment in oil refinery facilities does not match the worldwide increase in demand for fuel, so supplies of refined petrol and diesel are being stretched. This has forced prices upwards in the UK. The retail price of motor fuel rose by around 20 per cent during 2007 as a result of this. Even without the tax increase, the trend will continue in 2008.”

Holloway believes price pressure will increase as summer approaches: “The dollar remains weak and crude oil producers continue to pump more to offset their financial losses from this. The oil industry must also prepare for peak summer demand by buying stocks in spring, forcing prices upwards. Compounding this is the fact that Easter is traditionally when demand for petrol and diesel starts to grow, initiating the summer upward price momentum. Easter is early this year, so prices are going up earlier. All this means that the Chancellor will receive higher fuel duty revenues even if the increase does not take place.”

Holloway adds: “It would be best if the fuel duty increase were cancelled, or at the very least postponed. In the past, fuel duty increases have been announced in the budget, but delayed until the following autumn, to allow for the increased prices during the summer months. This was a sensible approach which should be continued.”