Government's six week £505 million fuel tax windfall makes October’s 2p fuel duty rise unjustifiable
16/05/08 | 00:01
From the start of the tax year on April 1st to today (Friday May 16th) the Government has had a windfall of £505 million in tax due to the rising price of oil - the same as what will be raised by the proposed 2p fuel duty rise in October during this tax year.
The findings have come from the British Chambers of Commerce fuel duty model which takes account of monthly fluctuations in:
- Fuel (petrol and diesel) sales;
- £:$ exchange rate;
- Price of Brent Crude oil;
- North Sea oil production
In the March budget the Government based its assumptions on oil revenue at $83.8 per barrel. Since then the cost of oil has rocketed, reaching a high to date of $126.40 per barrel.
This increase in the price of oil has increased the profits of the oil companies that are subject to North Sea Oil taxation and the price of fuel at the pump upon which consumers pay VAT. The BCC model estimates that the increase in the Government’s North Sea Oil tax revenues will be £390m of the £505m windfall, and the remaining £115m is the extra VAT on fuel at the pump.
David Frost, Director General of the British Chambers of Commerce, said:
“The rising cost of petrol is hitting everybody hard, not just businesses. Seeing the fuel gauge barely move when you put in £20 is frustrating and only going to get worse.
“With the Treasury estimates on what it would bring in on fuel tax woefully out of line with reality, this £505 million windfall in less than two months must surely rule out the 2p rise scheduled for October. It is simply unjustifiable.”
Ends
Notes to Editors
The British Chambers of Commerce fuel model was devised by Dr Brian Sloan and takes account of monthly fluctuations in:
- Fuel (petrol and diesel) sales;
- £:$ exchange rate;
- Price of Brent Crude oil;
- North Sea oil production – the impact of 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 totals would add further to the tax revenue take.
Exchange rate and oil price data for April has been assumed constant for the month of May. Fair assumptions are made for oil production based on RBS’ Oil and Gas index production figure for January 2008 (1.26m bpd, barrels per day) and we assume that May 2008 fuel sales will be the same as May 2007. April’s oil production figure is set at 1.05 m bpd to allow for the impact of the Forties pipeline closure due to the strike at the Grangemouth refinery and May 2008 production is set to 1.1m bpd to allow for the ramp up of production after re-opening.
In order to estimate the amount of fuel duty raised from October’s proposed increase it has been assumed that fuel consumption in the United Kingdom for 2008-09 follows the same pattern as that for 2007-08. On this basis the BCC estimates that the amount of additional Fuel Duty that would be raised by the Government between October 2008 and the end of March 2009 would be £505m.
The BCC’s Fuel Duty model also computes the impact on tax revenues from North Sea oil taxation and VAT at the pump due to increased oil prices and exchange rate fluctuations. The Treasury’s modelling assumption for the price of oil, $83.8 per barrel, is included in the model to estimate by how much the actual revenues accruing to the Treasury will differ from the model’s projections. It is on this basis that the BCC can estimate by how much Treasury’s current receipts will have increased beyond projections to match those that will be raised later in the year.
The BCC estimate that the Government will have raised the extra revenue that it will raise from the October increase in Fuel Duty, estimated at £505m by the BCC, on 16th May. If current oil prices, exchange rates and North Sea oil production remains constant until October 2008, by this time the Treasury will have gained more than 4 times the revenue it will raise from further Fuel Duty increases - £2.2 billion. This is on top of the final windfall gain to the Treasury for 2007-08 of £4.1bn due to higher oil prices.
Data Sources:
Grant Thornton fuel duty 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
Media Contacts:
Nick Dines
Tel: 020 7654 5812
Email: n.dines@britishchambers.org.uk
OR
Sam Turvey
Tel: 020 7654 5813
Email: s.turvey@britishchambers.org.uk