FUEL TAX

Petrol prices have been forced up by banks hoarding cut-price oil on offshore tankers. Tory MP Robert Halfon said banks including JP Morgan bid more than £95million for the oil, which had been released by Western governments specifically to bring down prices at the pump. The Harlow MP claimed banks hoarded the oil on tankers and waited for prices to rise. Mr Halfon said, "If it's true, this is outrageous. We urgently need cheaper petrol to get our economy moving again." A spokesman for JP Morgan declined to comment on what he called a "baseless argument". (Source: The Sun, Sep/11)

Comment:
This is nothing new. They've been doing it for years. It's not just oil, but almost every commodity like rice, meat, coffee, and many more that are bought by investors who then sell them on for many times the price they paid.

Drivers are paying about 7 pence more a litre than they should because speculators are driving up the price of oil at the motorist’s expense. Edmund King, President of the AA, said drivers have been in an even worse position but for supermarkets holding back on price increases earlier this month. He said, “UK families remain hostage to fuel price movements that buck traditional trends, and oil prices that don’t even make sense to experts in the market. It’s time the Government asked questions and, at the very least, introduced transparency into the oil, wholesale and retail markets. Why? Because the consumer is clearly being put through the wringer to line someone else’s pocket." (Source: Daily Telegraph, Sep/11)

Shell told motorists to take their complaints to the government, as it made profits of £30,799 a minute. And chief exec Peter Voser warned oil and gas prices were only likely to go higher in the coming years as it's getting harder to make new discoveries. Shell reported profits of £4 billion, for THREE MONTHS to the end of June but Mr Voser insisted the Anglo-Dutch giant hardly made a thing on the petrol forecourt.

And in a lengthy defence of Shell's mega profits he told critics to focus on the Middle East, and No.11. He said, "We produce 2% of the world's oil. We are very competitive on the forecourt and you have to remember that 60 to 70% of the price everybody pays at the pump is tax. We make nothing compared with our upstream profits." (Source: The Sun, Jul/11)

Fuel prices have hit a record high as it emerged the government is collecting a tax windfall of £240million a month from the surging cost of oil. The bonus means the Treasury could cut fuel duty by 6p a litre without affecting its economic forecasts. The Chancellor takes 67p from every pound spent on diesel and petrol, bringing in around £32billion a year in duty and VAT. However, the Treasury is netting an extra £240million a month in taxes on North Sea profits because the price of crude oil is higher than expected.

The figures on Treasury revenues were compiled by accountants Grant Thornton, which looked at the North Sea oil tax and corporation tax paid by firms such as BP and Shell. It said officials could act to minimise the impact of higher oil prices on consumers and the economy. Maurice Fitzpatrick, Grant Thornton tax expert, said, "So far, the high oil price, and the resulting high price at the pump, has not led to the intense pressure on the Treasury which occurred in September 2000. At that time, the high oil price sparked a blockade at oil refineries and panic at the pumps." (Source: Daily Mail, Oct/07)

The price of fuel in the UK is a complicated business and it changes month to month as the cost of crude oil rises and falls with international demand. British drivers also pay two taxes on the petrol they buy at the pump - Fuel Duty and VAT. Of these, fuel duty remains by far the most significant, and remains the most controversial. If a litre of unleaded petrol costs 85p, 21.7p will be the production costs and profit, around 51p will be duty and 12.5p will be VAT on top of all that.

The major change in petrol taxation came under the Conservatives in 1993 with the introduction of the Fuel Price Escalator. The escalator was designed as a means both to raise money and discourage car use on environmental grounds. At the time, British fuel was the third-cheapest in Europe. It is now the most expensive. The annual fuel escalator was set in 1993 at 3% above the rate of inflation. On its introduction it added three pence to a litre of fuel and raised the tax burden on unleaded petrol to 72.8% of the total cost.

When the Conservatives left office in 1997, the escalator was at 5% and had contributed a 11.1 pence rise to the cost of unleaded fuel. Tax as a proportion of total cost stood at 76.3%. On taking office, Labour's chancellor Gordon Brown increased the fuel escalator further and put three pence onto a litre of petrol in his first Budget. That pushed taxes up to 81.5% of the total price of fuel. While duty rose by two pence a litre as part of the 2000 Budget, Gordon Brown also scrapped the fuel price escalator, saying that future increases would be decided on the basis of the "due Budget process".

At the time, and perhaps rather ironically given current events, the AA said that it was the first budget in seven years in which "drivers can take some heart". According to the Tories this isn't good enough. They say that since Labour came to office, the petrol pump price of unleaded petrol has risen by around 71%. And while there have been large jumps in the price of oil, the party blames what it says is Labour's 16p per litre rise in taxes. Figures from the Institute of Fiscal Studies tell a slightly different story. The Conservative figure of 16p per litre is a combination of duty and VAT.

While the actual amount brought in by VAT rises with increases in fuel prices and duty, it is calculated at the same 17.5% level which the present government inherited from the Conservatives. Fuel campaigners argue that VAT should only be calculated on the cost of the fuel rather than on the fuel and the duty together. If VAT was not charged on the duty, the motorist would save around 8p per litre at September 2000 prices. None of the parties appear to support that move. Leaving aside VAT, fuel duty increases under Labour amount to 12 pence per litre - just slightly more than the rise caused by the escalator under the Conservatives.

Because of the rise in world oil prices, the proportion of the total fuel cost that is tax has fallen from 85% (March 1998) to 72.3% today - still one of the highest levels in the world - something that ministers have sought to stress in interviews. With the Tories pledging a three pence a litre cut should they come to power, the question is whether the Government should cut fuel duty and whether the country can afford it.

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