$100 oil price further undermines Treasury's case to increase fuel duty in April
20/02/08 | 15:25
Gareth Elliott, Policy Adviser at the British Chambers of Commerce, said:
"With the price of a barrel of oil hitting $100 yesterday, the pressure on businesses who need to use vehicles continues to grow. Businesses are not going to be able to hold off passing on these increased costs to their customers for much longer. With this in mind, we find no justification for the 2p rise in fuel duty set to happen in April that would raise £983m if fuel sales in 2008/09 match those of 2007/08. The overall impact at the pump of the two fuel duty rises totaling 4p on a litre in 2008/09 would burden the transport industry and the motorist with an additional tax £1.97 billion in the next financial year due to this tax alone.
"By the end of March the Government will have received an unexpected windfall of £1.7 billion from high oil prices since it increased fuel duty by 2p in October 2007, due to an under estimate of the price of a barrel of oil in the Treasury’s modelling. If oil prices remain high in 2008/09 the Government might reasonably be expected to raise £3.4 billion over the next twelve months, far exceeding the £983m amount that April’s planned increase of 2p would raise. The Government needs to recognise that not only is this tax rise completely unnecessary, but hitting businesses with another tax rise in the current economic climate will merely succeed in harming the UK's competitiveness."
Ends
MEDIA CONTACT:NOTES TO EDITORS:The BCC model takes account of monthly fluctuations in:Fuel (petrol and diesel) sales
£:$ exchange rate
Price of Brent Crude oil
North Sea oil production –
gas is excluded from this analysis as the Treasury have not yet published a figure for gas prices used in their forecasting models. Gas production total would add a further 1m boe (barrels of oil equivalent), the model assumption for oil production was 1.1mbpd (barrels per day)
The data for the four inputs above have been used for Oct 07 through to Jan 08, with fair assumptions made for February and March to complete the analysis for the six months ahead of the next fiscal year.
Data Sources:
Fuel sales – http://www.uktradeinfo.com/index.cfm?task=bulloil
£:$ - RBS commodity prices
Brent Crude – RBS commodity prices
North Sea oil production – RBS oil and gas index December 2007, assume September 2007 production constant.
Further Assumptions
Fuel sales for February and March 2008 are the same as the February and March 2007 figures
£:$ movement is downward in February and March 2008 with means of 1.95 and 1.93 respectively Brent crude falls to $89pb and $88pb in February and March 2008 respectively.
Grant Thornton modelling assumptions used in the BCC model
25% premium on North Sea oil to account for additional revenues for Petroleum Revenue Taxation
15% increase in overheads due to the increase in oil prices
The British Chambers of Commerce (BCC) is the National Voice of Local Business.
The BCC sits at the heart of a powerful nationwide network of Accredited Chambers of Commerce serving business across the UK, which employ over five million people.