Fuel duty hike wipes out VAT cut

Added on Tuesday, November 25th, 2008 by Carole Nash Editor | No Comments

Fuel duty will increase by a further 2p per litre on December 1^st after the Chancellor Alistair Darling delivered his Pre-Budget Report to the House of Commons yesterday.

The increase in fuel duty, which was proposed at the last budget before being postponed in the wake of rising fuel costs, will be enforced as of Monday, with a further duty increase of 2p to be added in April 2009.

As the Chancellor announced a raft of changes designed to kick-start the UK economy, VAT will see a temporary reduction to 15% – although increases in duty on fuel, alcohol or tobacco products will negate any VAT reductions.

Based on the current UK average price of unleaded (currently at 92.88p), the reduction in VAT will equate to a 1.72 discount before the 2p increase is applied.

The news has already angered motoring groups given the recent falls in fuel prices, with the AA, RAC and hauliers groups all expressing concern and anger at the decision.

Back in July, when the proposed increase was first due to be implemented, wholesale oil prices sky-rocketed to more than $147 per barrel, prompting forecourt prices to break the £1.20 per litre barrier.

Since then however, oil prices have fallen to around $51 per barrel and, although the full benefits of the drop have been off-set by the weakening of the pound against the dollar, prices on the forecourts have fallen in recent months.

In October, prices dropped below £1 a litre for the first time in 10 months whilst last week, several retailers reduced prices to 89.9p per litre.

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