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Brown prepares to raise duty on petrol

By George Jones and Toby Helm
Last Updated: 7:04am GMT 06/12/2006Page 1 of 5


A rise in line with inflation would add 5.68p a gallon - 1.25p a
litre to unleaded, or 6.68p a gallon -1.47p a litre with VAT

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Motorists face a rise in petrol prices today as the Chancellor, Gordon Brown, demonstrates his green credentials in his final pre-Budget statement.

He is preparing to announce the first fuel duty rise for three years, returning to the policy of raising tax on petrol and diesel in line with inflation.

Duties have been frozen since October 2003 because of oil market volatility, which pushed unleaded petrol close to the £1-a-litre barrier (£4.54 a gallon) in the summer.

The price peaked at 98.54p a litre (£4.48 a gallon) but has since fallen back to 86.17p a litre (£3.92). Average diesel price is 91.69p a litre (£4.17).

Mr Brown continued the freeze in his Budget last March and extended it in July, saying he would review the position in the pre-Budget report.

Raising duties in line with inflation would add 5.68p a gallon (1.25p a litre) to unleaded, or 6.68p a gallon (1.47p a litre) with VAT. The increase would also apply to diesel. Treasury sources last night ruled out "sweeping" new green taxes or a return to the previous policy of the fuel duty "escalator" which raised duty above inflation and gave Britain some of the highest petrol and diesel prices in Europe.

But they indicated that the recent stabilisation of oil prices and the need to take action to curb pollution justified ending the fuel duty freeze and taking a modest step towards raising the cost of motoring.

Mr Brown abolished the "escalator" in summer 1999 - before the widespread fuel protests over the cost of petrol and diesel, which led to blockades outside refineries and long queues at the pumps.

He then froze the duty in his November 2000 pre-Budget report, and also cut the duty on green petrol and diesel.

He had hoped to increase it in line with inflation in subsequent years but was forced to reintroduce the freeze in 2003 because of growing unease over rising fuel prices. Fuel duty has increased by only 45.6p a gallon (10p a litre) since 1997, or 25 per cent over the entire period.

Because of discounts for cleaner low-sulphur fuels over the past seven years, the duty on the main types of petrol and diesel is fractionally lower now in cash terms, at £2.14 a gallon (47.1p per litre), than in 1999 when it was £2.15 a gallon (47.21p per litre).

David Handley from Farmers for Action which helped organise the fuel protests in 2000, said last night that any rise in prices would hit industry and agriculture hard. "We are under tremendous cost pressure already," he said.

Mr Brown is likely to cite the Stern report on the environment, which called for new green taxes on cars, fuel and air travel to curb pollution, for the decision to lift the freeze.

The Tories say the proportion of tax raised in green levies has fallen from 9.4 per cent in 1997 to 7.7 per cent.

Ruth Bridger, the AA Motoring Trust's petrol price analyst, said the Chancellor needed to remember that his duty freeze had ensured that "the Pandora's Box of motorist protest remained shut".

But it will be announced today that sales of 4x4 vehicles have slumped by six per cent in a year following threatened tax rises and campaigning against "gas guzzlers".

The Society of Motor Manufacturers and Traders reports that "Chelsea Tractors" purchases dropped by 15 per cent last month. The second-hand value has also collapsed.

The Chancellor is expected to announce a rise in air passenger duty, which stands at £5 for budget flightsand £40 for business and first-class.

He has been pressing electricity and gas companies to offer more discounts to older customers hit by rising prices. But ministers played down suggestions that Mr Brown was considering raising the £200 winter fuel payment.

The Chancellor is expected to claim that growth will reach 2.6 per cent this year - better than the 2 to 2.5 per cent he predicted in the Budget.

The Tories claimed the figure was still below the EU average, with Britain placed 22nd out of the 25 members.

The Conservatives claimed last night that rising unemployment had cost the taxpayer £1.7 billion in benefit payments and lost taxation. The number out of work and claiming benefit has risen by 300,000 to 1.7 million.

According to the Tories, unemployment had risen faster in Britain than anywhere else in the developed world. George Osborne, the shadow chancellor, said: "This is £1.7 billion that could have been spent on schools and hospitals. It is the cost of social failure under Labour."

Mr Osborne said Britain's finances were "in a mess" and Mr Brown was planning to borrow £138 billion by 2011, more than £6,000 per family.

The Chancellor is also expected to reaffirm plans to spend billions on a major drive to revamp thousands of schools.

The investment, which will benefit up to 21,000 schools, will be financed by increased fuel duty.

Mr Brown is also likely to announce controls on the use of outside consultants by government departments, which costs £3 billion a year, while details of the consultancy contracts will also have to be made available to MPs.

This will pre-empt a National Audit Office report into the bill for consultants - estimated by some observers at £70 billion under New Labour.

In future, ministers will have to have Treasury authorisation before they can hire advisors and specialists in place of civil servants.

Mr Brown will also order Whitehall departments to slash administration costs by five per cent in real terms as part of a drive to increase efficiency.

In another initiative to be flagged today, organised gangs behind the pirating of films and music will be faced with prison sentences of up to 10 years.

Following the Gowers report, which called for tougher action on the abuse of copyright laws, Mr Brown will give his backing to action against criminals who peddle counterfeit CDs and DVDs or use websites to sell stolen films and music downloaded from the internet.

I always get riled when newspapers/radio tell you what such-and-such a politician "will say" later. Why don't they just wait until they say it and then report it. This avoids all the speculation.

They do this because the press release for the speech is issued before the speech is made. However, they have to use the future tense as it has been known for politicians to divert from the pre-written text.

Mr Brown continued the freeze in his Budget last March and extended it in July, saying he would review the position in the pre-Budget report.