Fuel duty plan would cut pump prices by 5p

July 7, 2008 | By | In Statistics

Proposal would mean less for the Govt and more for the driverWhen world oil prices rise, the amount of tax drivers pay per litre should fall. That’s the plan outlined by the Conservatives yesterday as a challenge to the Government and a solution to the nightmare of ever-increasing pump prices.

Shadow Chancellor George Osborne said Tory plans for a variable rate of fuel duty would have reduced the current price of a litre of petrol by 5p. Households would have saved an average of £90 on their car costs if the system had been introduced in the Budget, he said.

Under the existing system, duty and VAT (which account for more than half the retail price of a litre of petrol) are charged at a set percentage. The Treasury forecasts oil prices for the year to estimate how much income it will receive. If the price falls, the Government gets less than it wants. But if the price rises about what’s forecast, it gets more. The Daily Mail reports that the latest Budget predicted that world oil prices would reach $84 a barrel. But today a barrel costs almost $150, so the Government has received an extra £1.45bn.

Mr Osborne said his plan would stop the Treasury benefiting from unexpected increases in fuel costs. It would also protect public funds from a shortfall. The AA backed the plans, saying it had suggested a similar system to the Chancellor last January.

Meanwhile, Gordon Brown and his Chancellor, Alistair Darling, have dropped fresh hints that the 2p a litre rise planned in the Budget for October would not happen.

The Government’s response to the Tory plan is that it lacks detail and is unworkable as presented.

According to price survey web web site petrolprices.com, the average cost of a litre of petrol across the UK stands at 119.1p. For diesel, it is 132.4p.

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