Monday’s 2.5 per cent cut in VAT will not cancel out the 2p rise in fuel duty that will be levied at the same time, the AA warns, despite the Chancellor’s promise that the overall cost to the consumer would be the same. The duty increase at a time of falling prices will also raise the tax-take from a litre of petrol above 70 per cent of the price.
As the price of petrol continues to fall, the saving to drivers from VAT dropping from 17.5 to 15 per cent will diminish while the 2p duty hike remains constant. Average UK petrol prices finished last week at 91.81 pence per litre with 13.67 pence of the price VAT at 17.5 per cent. At 15 per cent VAT, that figure drops to 11.98 pence - a reduction of 1.69 pence per litre.
From Monday, if retailers absorb the extra tax and price their petrol at or below the end of the week average price, fuel duty will comprise 52.35 pence per litre plus the 11.98 pence per litre, giving the Chancellor a total tax haul of 64.33 pence per litre or 70.1 per cent of the pump price.
“While the petrol retailers continue to pass on cuts in the wholesale price and some, like Shell, have said they will absorb the extra duty, the Government will get at least an extra third of a penny tax from each litre of petrol – or nearly £200,000 extra a day,” says Edmund King, the AA’s president.
“This will be the first of three tax rises on petrol in between now and 1 January 2010. In April, fuel duty will go up a further 1.84 pence per litre and then the whole litre price will go up 2.5 per cent at the start of 2010 when VAT returns to its previous level.
“We were pleased that the Chancellor has listened to us and avoided massive Vehicle Excise Duty hikes but the fuel duty increase at a time when OPEC is looking to reduce production is worrying. From 1 December the tax on petrol will be more than 70 per cent a litre so if global costs start going up the road user will be hit again.”
