Market Focus March 2016 – Fuel duty special
In recent months, companies have been speculating that the Chancellor would increase UK fuel duty, with many motoring campaign groups already starting their publicity to denounce the rises. This was also reflected in the UK fuel market, with many of the big diesel buyers frantically increasing their orders in the hope that they could “get ahead” of the expected rise in costs. Therefore, there was a genuine surprise on March 16th, when the Chancellor announced that for the 6th consecutive year, there would be a duty freeze and that there would no fuel duty increases for another year at least.
We have taken a look at duty rates back in 1996, to see what all the fuss was about. Twenty years ago, fuel duty of 37 pence per litre (ppl) was seen as unacceptably high (partly because the fuel itself was only costing 9ppl!), but to the weary 58ppl duty payers of today, these lower figures seem pretty manageable. Between 1996 and 2010, fuel duty rose on average by 1.5ppl each year and this led many motorists to believe that the British Government was deliberately targeting them and taking advantage of their “easy” tax status.
Fuel duty in Britain was first introduced in 1908, but was scrapped after the First World War and then did not reappear again until 1928, when fuel usage was rapidly increasing. During the next 60 years, duty rates very often remained fixed for long periods of time (the 1960’s virtually saw the same rate for the whole of the decade). But then in the 1990’s, successive Governments discovered the large and effortless riches that were available in raising the tax on motor fuel. It was thought this rise was associated with the Labour Governments when it was, in fact, Norman Lamont and the Conservatives who set the ball rolling in 1993. First with a 10% duty rise, and then a Parliamentary Bill that thereafter set an annual 3% rise above the level of inflation.
In 2010, the UK had the highest fuel duty rates in Europe, although the duty freeze since 2010 has since enabled some of our European neighbours to “catch-up” (see graph below). Britain no longer has the highest fuel duty rates in Europe, that honour has now been bestowed on our Dutch cousins. But the UK is certainly unique in that we apply the same duty rate for both petrol and diesel, whilst all other European countries apply a diesel discount to support their indigenous haulage industries. Britain does no such thing and this is much to the frustration of our hauliers, particularly those in the South-East of England who have to compete with mainland European operators. Further salt is also rubbed into the truckers’ wounds when they look over their shoulders to their transport brethren in the bus industry, many of whom still receive a fairly hefty 34ppl rebate as part of the Bus Service Operators Grant (BSOG).
On current fuel consumption, duty rates generate revenue for the UK of £28bn per annum and if you add VAT (just on the duty element), a further £10bn is added. For a Government trying to balance the books, this kind of revenue is impossible to miss. It does make us wonder why the Chancellor did not take the opportunity this time around, to increase the duty. A 1ppl tax rise would have generated an extra £0.5bn revenue per annum and for motorists now paying 30ppl less for their fuel than 18 months ago, it is difficult to see that public opposition would have been anything other than accepting.