VAT & Fuel analysis

Whilst I'm still ranting about economists I recall a radio interview last week with some so called International Oil Analyst who was finding it extremely difficult to see how the government could help in steadying the price of fuel. I'm going to assume he's another Tory with an arts degree...

A quick google search found the petrolprices web site. For the purposes of this rant, I'm just going to run with the figures they give.

On the 1st of 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.

So, that's fuel duty up 2p deliberately to compensate for a cut in VAT... Were they funding the VAT cut by hitting the motorist? I don't remember this - but what you should know at this point is that the fuel duty we pay on every litre of fuel is also subject to VAT - tax on a tax! Yep, I hear you - No, that doesn't seem fair to me either!

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.

The plan is to deliberately increase the price of fuel at the pump for everyone at a rate above an index in any case. So, it's been deliberate policy to make fuel much more expensive for a number of years (remember, the price of fuel has a direct impact on the price of everything you need to live... apart from your mortgage - that goes up when the price of everything else rises too fast!)

On the 1st January 2010 the VAT rate reverted to 17.5%.

You're looking for the bit where the 2p added to the Fuel duty was rescinded aren't you... I know I was...

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 is scheduled to go up by 0.76p on the 1st January 2011.

What 3p fuel duty rise? Where the hell did that come from?

Now a simpleton like you or me might argue that the VAT returning to 17.5% should really have resulted in that 2p rise being rescinded. Of course, Whitehall are a lot more generous spirits than you or I. What they've done is NOT raise the price by a further 3p per litre rather than cutting it. We're 1p per litre better off - don't you see? ... Well apart from that 1p increase in April, but you were probably expecting something worse by then anyway.

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%.

I hope you weren't expecting them to cut fuel duty to compensate for that 2.5% increase in VAT (tax on a tax in this case), thereby proving that the previous 2p rise wasn't just another attack on the car owner, were you?

To be fair to the oil analyst, he was actually struggling to see how the government could help stabilise the cost of fuel across the country, rather than stabilising the cost of fuel, but that hasn't stopped me frothing at the mouth over the upward pressure they have deliberately imposed on fuel prices - which is surely the root cause of a significant proportion of the inflation they seem so concerned about.

In response to the analyst though, surely it isn't beyond the wit of man to devise a discount on the fuel duty based on geography and the normal fluctuations within the market; if the will to find a solution actually existed - after all, they managed to devise London weighting for civil servant's salaries to address the inequity of living in London...