Government gets £505m windfall as fuel price soars

May 16 2008 by Adrian Pearson, The Journal

THE Government has pocketed an extra £505m in taxes in just six weeks as North motorists struggle to keep up with rocketing fuel bills.

Businesses last night demanded the Government drop plans to add 2p on to the cost of fuel this October as the staggering rise in the cost of filling up at the pumps has already led to a massive increase in the amount racked in through VAT.

Bosses at Northumberland haulage firm Fergusons Transport have seen their fuel bill rise by £2m in just 12 months and have warned the Government that it risks pushing up inflation as costs are passed on to customers.

The British Chamber of Commerce has called for the Government to settle for the windfall tax income, similar to the amount expected to be raised by a 2p fuel increase, and abandon any plans for the October rise.

They claim that the rise in the cost of petrol and diesel will have led to a £390m tax payout from North Sea oil, with a further £115m in extra VAT on fuel.

Northern business leaders are now going a step further and calling for a cut in fuel tax to help secure jobs as the economy threatens to head towards recession.

Ross Smith, North East Chamber of Commerce head of policy, said: “We support the British Chamber of Commerce in that the 2p fuel duty rise proposed for October should not just be postponed, it should be abandoned altogether. In fact, NECC thinks the government should go even further and consider cutting duty because we already pay more tax on fuel than most countries in the world, let alone Europe.”

Alan Ferguson, executive chairman of Fergusons Transport based in Blyth, said the rising fuel bill was affecting every aspect of his business.

He said: “We are moving to Northumberland Business Park in Cramlington to be closer to the A19 because we need to look at those initially small savings which in the long run will save us money.

“We can’t go on like this. I’m paying £2m more now in fuel bills than I was last year, and it is getting worse. This has to be dealt with now, we simply cannot wait until October.”

Berwick MP Alan Beith has backed their calls, accusing the Government of failing to listen to real concerns.

He said: “All the parties have a general policy of trying to discourage fuel dependency with some taxes, but when the price of fuel is this high you do not need to do that.

“The purpose of the 2p tax increase was to deter fuel use, but the international price of oil is doing that already, and any tax would be unfair on families and businesses already struggling.”

But the demands to the Treasury were last night dismissed as unneeded. In a statement, the Treasury claimed they had not benefited from an increase in fuel VAT because with costs so high, people could not afford to spend as much, therefore reducing the overall tax increase.

A spokesman said: “The government understands that businesses and families are feeling the pressure from high fuel prices, which have risen by over 19% since this time last year, and are at record nominal highs. As the Prime Minister has made clear, the immediate priority is to encourage oil-producing countries in OPEC to increase output to help bring down fuel prices.

“Current high fuel prices have not resulted in a VAT windfall. This is because when people need to spend more on one commodity, such as fuel, they tend to spend less on others, leaving the overall level of VAT receipts largely unchanged.

“Businesses are also able to reclaim VAT from fuel, so the level of VAT paid at the pump should not increase their overall tax burden.”

I’m paying £2m more now in fuel bills than I was last year, and it is getting worse.