Cut fuel duty to boost consumer spending
The Chancellor should cut fuel duty to keep up consumer spending, argues Brian Madderson, Executive Chairman of the Petrol Retailers Association.
It may have been one of the driest Autumns on record but drivers on Britain's roads have faced 'a perfect storm' at the pumps over the last few weeks.
First there was the news that OPEC were going to cut oil production, causing an uplift in the price of oil from USD 45 at the beginning of September to USD 52 by the middle of October. On its own, this would have been enough to push pump prices up by about three pence per litre but the massive drop in the value of the pound at the same time meant that it was only half the story. Against the dollar, the pound has fallen by nearly 25 per cent since the summer, pushing UK fuel prices up by a much greater factor than from an increase in the oil price alone.
When you include commercial usage, diesel is now the predominant road fuel. The movement in the exchange rate from USD1.50 to USD1.21 alone would have moved the diesel price of 102 pence per litre (including duty and VAT) to a price of 110 pence. Add to that the 3 pence oil price increase and you will see the price of diesel at the pumps rise by yet more.
Petrol retailers calculate that average UK pump prices will reach 120 pence per litre by the year end, a very nasty real price increase of 20 per cent in just twelve months. Couple that with the fact that Britain imports many other consumer goods and it is little wonder inflation will be back as a major challenge for policy makers in 2017.
It would be a mistake to take money out of people's pockets in the forthcoming budget, as this could lead to stagflation – no growth plus higher prices. The Chancellor should make use of historic low interest rates on government borrowing and ensure that UK consumers are able to continue spending to keep the economy on track.
Drivers have been contributing more and more to the Exchequer over the past year as the volume of fuel sold has risen over previous year totals. Higher revenues have followed and HMRC has quietly pocketed an extra billion pounds this year from the fixed excise duty of 58 pence (plus 20 per cent VAT) on the windfall extra volume purchased. They should be given their money back next year by reducing the duty on fuel by a billion – or 3 pence per litre of road fuel sold.
The Chancellor's Autumn Statement on 23 November presents him with the perfect opportunity to show he is no Jeremiah. Instead he must use all the tools at his disposal to keep the British economy on the road to prosperity.
Brian Madderson would like to acknowledge Portland Fuel for supplying oil price data to the Petrol Retailers Association for this article.
