A permanent 2p duty increase in fuel tax has been introduced in the pre-budget report, which despite being presented as revenue neutral, will mean that fuel prices will rise over the next year and beyond.
The move to increase fuel duty by 2p has been introduced to offset the rate cut in VAT from 17.5% to 15%. However, although the VAT holiday will last 13 months, the 2p duty rise is permanent.
When VAT returns to 17.5% motorists will still be paying the higher rate fuel tax of 52.35p per litre and the higher rate VAT, making tax 74% of the total cost of a litre of fuel, and instantly boosting the cost of fuel by 2p a litre.
If the Chancellor had instead announced scrapping duty and VAT, a litre of petrol would cost just 25p.
The changes are designed to be neutral, but calculations by PetrolPrices.com show that there will be a slight increase at the pumps of 0.4p a litre, or 20p per average 50 litre tank of unleaded when the changes come into effect on December 1st. The fact that fuel prices will increase at all is contrary to the message from the Chancellor that the changes will be revenue neutral.
Motorists and businesses will effectively be bearing the brunt of the costs involved with implementing changes to help the UK as it heads into a recession.
Fuel is taxed twice – a fixed duty and percentage VAT. The changes mean that the fuel duty will be 52.35p per litre and VAT will be 15% from the 1st December.
Do you think the Chancellor did the right thing? Is it fair to make motorists foot the bill for the cost of reducing VAT? Should we have VAT on fuel at all?