Are fuel taxes fair to the motorist, or are they merely an income generator for the UK Exchequer?

Posted: Jan 31, 2012 |Comments: 0 |

We're all affected by rising prices, particularly during times of recession. We're all having to pay more for our gas and electricity, yet finding that our wages are, at best, struggling to keep pace with inflation. Yes, times are definitely tough and show no signs of improving in the short to medium term. But, if you think we've got it bad, then spare a thought for the poor old motorist. Fuel prices for motorists haven't just stated to increase during the downturn: on the contrary they've been rising for the last 18 years and show no signs of slowing down. Now some may argue that this is the fault of oil producers and the petrol companies, but the fact is the government has to take its share of responsibility too. Tax levies on fuel have risen disproportionally during this period, and the motorist is the one who's had to shoulder the burden. So, what's going on? How can these tax rates be justified? Are they reasonable, or has the car user become the Exchequer's cash cow?

How much tax does the motorist actually pay, and how's this tax calculated?

Fuel tax is an imposed sales tax put on the sale of fuel. Frequently, fuel tax is looked upon as a source of general revenue, with some being put towards the maintenance of roads and highways, but much of it being spent elsewhere. Fuel tax in the UK is constantly changing and has risen steadily over the last 15 years. Between 1993 and 1999 there was a rapid increase with duties on fuel increasing by 3% above inflation. This was due to a major change in petrol taxation in 1993 when the Conservatives introduced the Fuel Price ‘escalator'. This was a way of the government making money, whilst also claiming that it helped protect the environment by discouraging people from using their cars.

What was the effect of the fuel price escalator?

This fuel escalator forced prices up from one of the lowest in Europe to now one of the most expensive. When it was first added, fuel prices rose by 3 pence a litre and tax contributed to 72.8% of the total cost. By 1997 the escalator had added 11.1p to the cost of unleaded petrol and was at 75%. It didn't get any better when the conservatives left office either, as Gordon Brown continued to apply the escalator, adding another 3 pence per litre. This took tax up to an unbelievable 81.5% of the total price of fuel.

Despite the fuel escalator being abandoned in 1999, fuel prices still continued to rise rapidly, with a 2 pence a litre rise after the 2000 budget, adding to the unrest that resulted in the fuel protest. The government claimed these rises were a result of increasing oil costs rather than tax increases. It may be hard to believe this, but the argument does hold some truth: although the overall price of fuel has risen, the percentage of tax has stayed relatively constant and even dropped slightly this year.

Fuel Tax Figures

2007 Fuel Tax Figures

2007 fuel duty (as of 1 October 2007) in the United Kingdom was:

50.35 pence per litre for ultra-low sulphur unleaded petrol/diesel53.65 pence per litre for conventional unleaded petrol56.94 pence per litre for conventional diesel30.35 pence per litre for bio-diesel and bio ethanol – low tax to encourage consumer conversion16.49 pence per kg for gas other than natural gas (LPG)13.70 pence per kg for natural gas used as road fuel.9.69 pence per litre for rebated gas oil (red diesel)9.29 pence per litre for rebated fuel oil

2008 Fuel Tax Figures

On 1 December 2008 a permanent 2p increase in fuel tax was introduced to offset the rate cut in VAT from 17.5% to 15% bringing the duty rate for the main road fuels up to 52.35p per litre.

2009 Fuel Tax Figures

2009 fuel duty (as of 1 September 2009) in the United Kingdom was:

56.19 pence per litre for main road fuels, unleaded petrol and diesel65.91 pence per litre for leaded petrol36.19 pence per litre for biodiesel and bioethanol22.16 pence per kg for road fuel natural gas27.67 pence per kg for road fuel liquefied petroleum gas (‘LPG')

On 1 April 2009 the duty rate for unleaded petrol and diesel was increased by 1.84 ppl to 54.19p per litre and again on 1 September 2009 by 2 ppl to reach the level of 56.19 per litre. These rates were planned to be increased further on 1 April 2010 to 2013 by 1ppl above indexation each year.

2010 Fuel Tax Figures

On the 1st January 2010 the VAT rate reverted to 17.5%. The 3p fuel duty rise scheduled for early 2010 was delayed in 2010 Budget with the duty going up by only 1p a litre on the 1st of April. This went up by another 1p a litre on the 1st October 2010 and was scheduled to go up by 0.76p on the 1st January 2011.

2011 Fuel Tax Figures

A 0.76p increase on the 1st January 2011 brought the duty rate for the main road fuels up to 58.95p per litre. This coincided with the 2.5% increase in VAT rate, which is now at record high of 20%.

2011 Coalition budget

On the 23rd of March 2011 the government announced a number of tax changes which could affect the price at the pumps.

There was an immediate £0.01 per litre cut in the hydro carbon duty rates which meant duty fell to 57.95 pence for both petrol and diesel.

The Government also announced a "fair fuel stabiliser" policy which stated that when the price of oil was above a target price ($75 US was proposed for consultation) as it was on 23rd of March 2011, fuel duty would increase by CPI inflation currently 4.4% per year (5.88 pence based on an average price of unleaded of £1.34 for that day) starting on the 1st of January 2012.

The fuel duty escalator which was abolished was based on CPI measure of inflation and the Government has also said that if the oil price were to fall below the target price on a sustained basis then they will increase the duty by RPI plus 1 penny. Using RPI rather than CPI at today's rates for both would see an increase of 1.49 pence per litre because of the change of indexation measure alone.

The Government is also proposing to start a fuel duty rebate pilot scheme to help the Scottish Isles affected by high fuel prices seemingly acknowledging lack of competition between retailers and increased distribution costs in those areas. If approved by the EU, 5 pence per litre rebate could apply to all affected areas.

The Government has also proposed that a supplementary charge which is currently applied to oil and gas production at 20% goes up to 32% immediately generating extra income for the Exchequer.

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Questions and Answers Ask our experts your Economics related questions here... Ask 200 Characters left I am looking to buy a used vehicle. i need 4x4 but do not need a full size vehicle. what will be a fuel efficient option for me as i am on a limited income and fuel prices are rising What are uk income tax bands? As a french resident/ tax payer, must I also pay tax/declare rental income from our house in UK if declared in UK under non-resident landlord scheme? The rent goes into daughter's UK uni a/c Rate this Article 1 2 3 4 5 vote(s) 0 vote(s) Feedback RSS Print Email Re-Publish Source:  http://www.articlesbase.com/economics-articles/are-fuel-taxes-fair-to-the-motorist-or-are-they-merely-an-income-generator-for-the-uk-exchequer-5618148.html Article Tags: petrol, petrol prices, disel, disel prices Latest Economics Articles More from Jason Walker Npa to abide by courts ruling

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