Coffee House

Briefing: Another fuel duty freeze?

12 November 2012

6:59 PM

12 November 2012

6:59 PM

It looks like George Osborne will put the planned fuel duty rise on hold again, in order to avoid another Tory rebellion and potential government defeat in the Commons.

This battle has its origins in a Labour Budget: that of 2009, in which Alistair Darling introduced a fuel duty escalator whereby fuel duty would increase by inflation-plus-a-penny every April from 2010 to 2013. In his 2011 Budget, Osborne announced that he was abolishing the escalator and instead cutting fuel duty by 1p per litre. From January 2012 onwards, the escalator was to be replaced by a ‘fair fuel stabiliser’, under which the duty rises by inflation-plus-a-penny when oil prices are low for a sustained period, but only by inflation (as measured by the Retail Prices Index) when they are high.

Fuel duty was therefore set to rise by 3.02p per litre on 1 January 2012 — keeping it constant in real terms — and then again by inflation on 1 August 2012. But in last year’s Autumn Statement, Osborne delayed the 3.02p January rise to 1 August and cancelled the original 1 August rise (which was expected to be 1.92p per lite). And then, in June this year, he announced that the 3.02p rise would again be delayed until 1 January 2013 – and it’s this rise that is being debated in the Commons this evening.

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A number of Tory MPs have been arguing against a fuel duty rise, and threatening to vote with Labour to delay it at least until April 2013. It seems that Osborne, afraid of another Commons defeat at the hands of a Labour-Tory rebel alliance, has found a compromise with the potential rebels. Robert Halfon, the Tory backbencher who has long been at the front of the campaign against a fuel duty rise, said today that ‘I have had discussions with various people and it is my view that the government is in strong listening mode. If I didn’t believe that I would make a point and go in to the lobby with Labour.’ So it seems we can expect Osborne to announce another delay in his Autumn Statement next month, if not before.

It’s worth noting that a cash freeze in fuel duty is a real terms cut, and in fact fuel duty has already fallen by about 14 per cent in real terms since 2000:

And how much would another freeze cost? Well, the Treasury estimated that delaying the rise for five months from August 2012 to January 2013 cost around £550 million. Delaying it for a further three months — if that is indeed what Osborne does — should therefore cost somewhere around £330 million. That’s roughly consistent with the NIESR’s estimate — in a report for FairFuelUK campaign — that a 3p rise on 1 January 2013 would reduce the deficit in Q1 by £293 million. However, they also forecast that the rise (as opposed to no rise, rather than just a delay) would reduce 2013 GDP growth by 0.1 percentage points and cost around 35,000 jobs by the end of next year.

But if Osborne has indeed agreed to postpone the increase in order to avoid a backbench rebellion, his relief may well be short-lived. On the evidence of the past couple of years, we can surely expect him to come under pressure for yet another delay in a few months time.

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Show comments
  • David Mahoney

    THE popular vew is that we should not increase duty on car and lorry fuel’Fair enough but its crazy that we shop around to save 1p per litre (50p on a 50l fill) when we can go into most super markets and save £5 on the majority of wines.Its all in the mind.
    More to the point is the unfair Road Fund Tax on say a 3l car only doing less than 4000 miles per annum.Yet a 2l car doing 35000 miles pa has a Road FundTax of only about 1/2 of the 3L car. I defy anyone to prove that the low mileage 3L car does more CO2 damage than the 2L car ! Are we low mieage long legged drivers being conned?!

  • JP

    So what’s going to pay for this? What are Labour proposing, that miraculous bankers’ bonus tax again? Cut taxes and spend more, when are we all going to grow up?

  • Olaf

    Petrol duty seems to be a self defeating tax at the moment. People are driving less and buying smaller cars so returns are down for the government anyway. That wouldn’t be why the Gov is looking at road tolls would it? When we’re all in electric car utopia the Gov will still need to extract billions from drivers somehow.

  • ButcombeMan

    Did it possibly occur to you that Osborne might WANT to hold it down?

    Did you ask him?

  • David Lindsay

    How about, as part of the comprehensive
    reorganisation of the tax and benefits system that the Labour Party will
    have to devise between now and the next General Election, a
    headline-grabbing, fully costed commitment to reduce petrol duty
    dramatically, and either to do the same to road tax or else, quite
    conceivably, to abolish it altogether?

    Jeremy Clarkson, of what is now the Labour Ward of Chipping Norton, what would
    you say to that? You would be saying something quite different a couple of
    years later, when the implications had sunk in, for only in Britain do motorists imagine that somehow they own the roads
    because of “we pay for them” through road tax and petrol duty, which
    are not particularly large contributions to the colossal central
    and local government cost of the road network. But by then, it
    would be too late.

    Ed Miliband and Ed Balls, over to you.

    • itdoesntaddup

      Road tax, fuel duty and motoring related VAT and Insurance tax pay for the cost of the roads several times over. Spending on roads is around £9bn p.a., while fuel duty alone brings in £27bn.

      • David Lindsay

        You have to discount an awful lot to arrive at only £9bn. More things that, like the roads themselves, the Clarkson Tendency imagines to be “just there”.

        And in 20 years of following these issues, the contribution figure cited by that Tendency, as it now is, has always been precisely three times the alleged cost of the roads. Funny, that.

        Still, as I said, by all means find some way to reduce petrol duty dramatically, and either to do the same to road tax or else, quite conceivably, to abolish it altogether. But then where would you be?

        • itdoesntaddup

          Substantiate higher figures if you can. Mine are from PESA, and include spending on local roads as well as national ones.

  • no faith in uk politics

    We live in hell, doomsday is near! Any things better then this

  • William Blakes Ghost

    It’s worth noting that a cash
    freeze in fuel duty is a real terms cut, and in fact fuel duty has
    already fallen by about 14 per cent in real terms since 2000:

    Well looking at those graphs diesel hasn’t seen a significant fall. Its just below its all time high. No wonder business is struggling so badly and the economy is flat.

  • Willaim Blakes Ghost

    When the Brussels parasites are demandfing more and Dave wants to demonstrate his largesse in dishing ever increasing Aid around the world does he really think he will be anything but despised by the British electorate for raising fuel duty. A decent Government working in the best interewst of the country would tell Brussels to shove their subisidies,, freeze, if not cut the aid budget and be working to cut fuel duty and taxes from its preposterous 60% of the total cost.

    Cameron and co are truly clueless

    • telemachus

      In the great scheme of things the minor amounts we contribute to the Euroclub are small beer for the benefits of access to the European Market as the City declines-See Fraser below

  • Daveyyy12

    It’s worth noting that a cash freeze in fuel duty is a real terms cut, and in fact fuel duty has already fallen by about 14 per cent in real terms since 2000:

    Play with your statistics all you want all you will do is antagonise the remaining few fools who might have vote Tory. All that money we cut the deficit by yet cutting Foreign Aid and legal aid we can pay off the debt and have no fuel duty increase. Antagonising the electorate will be your end game.

    • http://www.facebook.com/profile.php?id=813155483 Michael Gargan

      It’s not “playing with statistics”, it’s fact.

      If you think the price of petrol is still too high anyway, you should have contributed to the discussion by saying that instead of the emotionally charged nonsense you chose to share.

      • Daveyyy12

        Emotionally charged nonsense will decide who I vote for.

        No EU referendum then I will not be voting Tory. With nutters like me Dave will not get elected which means you should show me some respect.

        fuel duty has already fallen by about 14 per cent in real terms since 2000:

        Sadly Michael you have missed the trick, switching the pea between cups, a tad to quick for you I feel.
        The last Labour government did it. The rise in petrol means that the fuel duty, as a percentage of the overall cots of petrol has fallen. If petrol drops in price it will mean the fuel duty will of course rise asd a percentage. Getting it Michael, sinking in. Duty is fixed but the price of petrol is not.

        The cost at the pump has not fallen, why would it as the cost of petrol and duty has been rising and we have the added bonus of VAT for good measures.

  • Daveyyy12

    Why?

    If the Tories want to be re-elected cut foreign aid, cut legal aid.

    BTW: I will only vote Tory if we get the EU referendum.

    • David Lindsay

      At last week’s Shadow Cabinet meeting, Andy Burnham called for an end to the acceptance of “any old cobblers from Brussels,” and specifically of the entitlement of foreign EU nationals working in the United Kingdom to claim Child Benefit for children living back home.

      Much has been made of the fact that Jim Murphy urged that Labour “supports the EU and wants to reform it from within.” But everyone knows that that is the code making it possible to come back to the House of Commons and to the broadcasting studios bemoaning that, “Well, we tried, but they just weren’t having it.”

      Murphy is on record as calling for a referendum on EU membership, which practically guaranteed to be promised by any Policy Review chaired by Jon Cruddas.

      Now, when is any member of the present Cabinet going to call for a referendum on EU membership, which David Cameron and William Hague have repeatedly and specifically ruled out, but which was Lib Dem policy at the last General Election?

      And when is any member of the present Cabinet going to call for an end to the entitlement of foreign EU nationals working in the United Kingdom to claim Child Benefit for children living back home?

      • Daveyyy12

        Simple..

        Not Referendum no vote. Keep telling them until they get it.

        • David Lindsay

          You’ll be telling the Conservative Party forever. Why waste your breath? This is a 1974 moment.

          • Daveyyy12

            I will vote UKIP until we get the vote. I may even spoil the ballot whatever happens Labour, Lib Dems or Tories will never get it.

      • 2trueblue

        With you totally on your last point. It is crazy. We need logic and that is certainly off the wall.

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