Sam Coates, Chief Political Correspondent
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The Conservatives announced plans yesterday to curb rising petrol prices by cutting fuel tax when oil prices rise, saying the move would reduce prices at the pumps by 5p a litre.
A Tory government would introduce a “Fair Fuel Stabiliser” to use the additional tax revenue generated by the oil price rise to absorb increases at the pump by 50 per cent.
The Tories claim that the Treasury benefits from an additional £100 million a year for every $1 a barrel rise in the oil price and want to use this to “share the pain”. They deny this will create a financial black hole because oil windfalls are not used when calculating spending plans. Motorists would also face tax rises on fuel if the price of oil dropped, with a target level set in the first Tory Budget. This is designed to ensure that the government met its revenue forecasts.
The Tories claim that, had the Fair Fuel Stabiliser been introduced in the 2008 Budget, when unleaded petrol cost £1.08 a litre, then half of the 10p rise since then would have been absorbed by government. Ford Mondeo owners filling up at £1.18 a litre today would therefore save up to £3.50 on each tank of fuel under the Tories, and Vauxhall Astra drivers £2.60. Last week Gordon Brown said that the notion of a windfall was an illusion because rising fuel costs hit the economy and drive down the tax take in other areas. The Tories believe, however, that their plan would keep prices lower and would reduce inflation from 3.3 per cent to 3 per cent.
About 60 per cent of the retail price of fuel is accounted for by tax, with the Tory figures showing a 115p-a-litre price for petrol is typically made up of 50.35p in fuel duty, 17.13p in VAT, 37.35p for the cost of the product and 10.17p for delivery and retail.
The party issued a consultation document yesterday asking how frequently the fuel duty levels should be changed and how this change should be calculated. George Osborne, the Shadow Chancellor, said: “We need a totally different approach to fuel duty, where government helps families instead of harming them. A Conservative government would share the pain when oil prices rise, and share the gain if they fall. So when the price of oil goes up, fuel duty would actually be cut. And with duty rising when oil prices fall, we would be putting something aside in the good years to help in difficult times.”
Vince Cable, the Liberal Democrat Treasury spokesman and a former chief economist at Shell, said Mr Osborne was “presuming a knowledge of future trends in oil prices which is not shared by most people who look at these professionally”.
He said: “If George Osborne wants to be taken seriously, he needs to explain what assumptions he’s making about the trend in oil prices.”
Kitty Ussher, Economic Secretary to the Treasury, said the Tories were wrong to assume a straight trade-off between oil prices and increased revenues. “When oil prices go up, some revenues fall while others rise, because of the impact on business profits and household budgets. So if George Osborne were to do what he proposes, he would need to raise nearly another £3 billion in taxes elsewhere in this year alone to plug his tax gap – that’s getting close to an increase of 1p in basic income tax.” The AA, the motoring organisation, strongly backed the plans, with Edmund King, its president, saying that the organisation suggested a similar system to the Chancellor in January. “Record pump prices and high levels of excise duty are affecting the mobility of millions,” he said.
Mr Brown and Alistair Darling have hinted strongly that the 2p rise in duty due for the autumn will be suspended.
£3.50 - What a Ford Mondeo owner would save when filling up under the plan
Source: Conservative Party
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How come over 37p is for the actual product? In the middle east this week I paid about 15p per gallon! Surely the product is the same... Not just the Goverment over charging us! 5p tax cut would help the country as a whole but that would soon be back on. Where would this deficit in tax be made up?
Dick Johnson, Peterborough, UK
I will only ever drive at 60mph now on the motorway. I drive wherever possible in 5th gear and don't rush anywhere. The difference in added journey time in negligible, it's also safer - and I get about 100 miles extra per tank. If we all did this, demand and consequently prices would fall.
Dave Pimlott, Manchester, England.
I would quite happily use public transport for many situations. The only problems are its cost, which is at least as high as that of using the car; and double the time door-to-door to get to where I'm going. Under these circumstances, 5p off car fuel is a bit of a non sequitur.
Terry Dell, Weybridge, UK
Why cant we just pump 3 billion pounds into alternative fuels. I'm not green only when money matters. It makes sense to change the we work. Why not replace petrol with vegetable oil, LPG an electricity. why not even create the hydrogen pumps that aren't available in the UK. WE NEED TO CHANGE!
Sunny Patel, Coventry,
a nice bit of state price control from the free market party
richard, leeds, uk
Is it me being thick, or will a decrease in fuel prices not also help struggling buisnesses and allow further growth? The reason that there is a fall in revenue in some areas is companies tend to try to save on fuel costs, meaning less production and spending. A cut would benifit both parties?
Leon, Warwick, England
how come oil companies are still making millions of profit even though the barrel for oil is rising? it is not fair that the consumer has to pay for the rise of the fuel why cant the companies pay for that and make a less profit. the government should have put a limit on the price of the fuel
ez, enfield, uk
In 1998, the Florida Legislature passed its first "Florida Residents' Tax Relief Act," which created a "sales tax holiday" where certain purchases of clothing would be exempt from Florida's state and local sales and use tax.
England could do this with petrol to give the economy a needed boost
Mark, Maidstone, England
promises, promises and no one held accountable, same old story. welcome to the age of central party politics.
redtom, bolton, u.k.
If these politicians want to kick start the economy back to health then they should get rid of VAT on all goods.
Louis Blanc, Liverpool, UK
ooooooohhhhh! A whole 5p! Thanks Mr Cameron! The saving will be eaten up by the oil compnaies in a month.
This shows the stupidity of this debate. The problem is the PRICE of oil, not the rate of Duty, the level of which BTW was massively increased by the last Conservative Government.
Douglas Newell, Saltcoats, UK
simon, London
We're not running out of fuel. We haven't even started in Iraq, Alaska and parts of Canada let alone Brazil and the Southern Atlantic.
Phill, The Wirral, England
Political rhetoric to get votes.
Mark, Yorkshire,
Mmmm Wasn't it the Tories who introduced the fuel escalator to start with ?.
Kenneth O'Boyle, Perth, UK
5p? big deal. A litre of fuel goes up in price by 5p every few weeks. The Tory's are being disingenuous. They want to keep the huge tax revenues from the public. Perhaps they'll do something better with the money but they should be open and honest about it.
Matthew, Bucks, UK
Can someone explain to me why we can't cut the VAT on the fuel rather than the basic tax. Thank you. I thought I read that Sarkozy was going to cut the amount of VAT on fuel in France.
Dr Ian Burgess, Bristol,
And what will be done to ensure that any reductions in duty are passed on to the consumer in full as opposed to bolstering the profits of the vendors.
More Regulation? Surely not.
Alan Hargreaves, Holywell, UK
They need to cut demand not the price, if the price to consumers falls it will stimulate demand and the price before tax will rise again. The producers will be better off and the government worse off and the hauliers still in the same boat.
Peter Morris, London, UK
Malaysia is facing exactly the same predicament, but the government says it cannot continue to subsidise the increased fuel prices, although Malaysia is a net oil exporter. Instead, it asks the people to change their lifestyles when government ministers continue to burn fuel with their hummers.
K Ang, Penang, Malaysia
Dont think that the conservatives wont raise the taxes in another area of the economy to make up the difference.UK is already bankrupt so they cant afford to lose the tax income from petrol like this.
Luke, perth , australia
Another expensive and inept 'solution' that does nothing to solve the underlining problem that we are runnng out of fuel. The Conservatives need to do better.
simon, London,