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Media frenzy pressures government over fuel duty

12 January, 2011

Soaring fuel prices have hit the headlines this week, as the national press get behind the RMI Petrol's campaign to cancel the next fuel duty increase due on April 1. With prices rising to record levels on a daily basis, RMIP chairman Brian Madderson has this week written again to Chancellor George Osborne – following no response to his letters in November and December.

He wrote that the average price of diesel is expected to reach 140ppl from April 1 this year; recommends that the government abandons the duty escalator principle; questions the effectiveness of the government's suggested duty 'escalator'; and highlights that the government has not yet involved or consulted industry in any of its changes to taxation directly affecting road fuel pricing.

He wrote: “Given that the government has no control over global oil prices, nor over exchange rates and nor over biofuels availability/costs, the immediate response to provide some measure of comfort for businesses and motorists must be to announce the freezing of the duty 'escalator' due for implementation for April 1.

“In our opinion an ill-defined 'fuel price stabiliser' mechanism would be a very obvious political 'fudge', rather in the manner of the Chief Secretary's much maligned rural fuel duty announcement presented last autumn.”

Meanwhile the Forum of Private Business has also joined the fight for an end to the fuel duty escalator.

The organisation is arguing that a straightforward reduction in duty would be the simplest way to tackle soaring prices at the pumps if its proposed ‘fuel price stabiliser’ proves too impractical to implement.

The Forum made the call in response to new comments from Prime Minister David Cameron, who signalled that the government was again looking into the idea of a fuel price stabiliser.

The stabiliser would be a mechanism designed to reduce the tax on petrol and diesel as the price of oil rises, and visa versa, in order to keep fuel prices relatively constant.

The idea was originally proposed in the Conservative pre-election manifesto but appeared to have been dropped after Chancellor George Osborne instructed the Office for Budget Responsibility (OBR) to look into it. According to reports, the OBR claimed that the stabiliser would be too impractical and costly to implement.

Forum chief executive Phil Orford said: “The idea of the fuel price stabiliser was sold to the public quite heavily by the Conservatives before the election and we supported it from the outset. Both high and fluctuating fuel prices cause serious problems for smaller companies and their cashflows, so we would welcome any attempts to tackle the problem.

“However, since gaining power, Mr Cameron’s government has failed to follow through on the stabiliser concept,” adds Orford. If the fuel price stabiliser is again deemed to be unworkable, a significant reduction in duty – or perhaps a reclassification of the VAT rate on fuel – is desperately needed to help keep businesses moving. It is widely predicted that oil prices are only going to keep rising over the long-term so perhaps there is little need for a stabiliser mechanism anyway.”