And so we had the Coalition government’s first ’regular’ Budget on March 23, awaited for with much anticipation by fuel users and petrol retailers alike. First let’s just remind ourselves that as Mr Osborne got up to speak, typical pump prices were around 133.9ppl for unleaded petrol, and 139.9 for diesel, with motorway and rural sites trading at considerably higher prices. In the weeks leading up to Budget day there had been a lot of speculation about several possible moves in relation to fuel pricing: an immediate scrapping of the next fuel duty rise which was due this month; a reduction in VAT on fuel; and a longer-term ’fuel price compensation’ mechanism to balance the duty on fuel against the price of oil.
In the event, the Chancellor chose to announce several measures of direct relevance to forecourt operators:
An immediate cut of fuel duty by 1ppl from 6pm on Budget Day.
The next duty increase that had been due on April 1 was deferred to January 1, 2012 when the main fuel duty rate will increase by 3.02ppl.
The suspension of the ’Fuel Duty Escalator’ (which was the formula used to create these regular duty increases) until 2015. The revenue from this is to be replaced by a ’fair fuel stabiliser’ tax on North Sea oil production, the exact details of which haven’t been formalised at this point, but which would appear to use a market price of around $75/barrel as a tax threshold.
No change in the rate of VAT applied to fuels greeted by a sigh of relief from every retailer and accountant working in fuel retailing!
An increase in tobacco duty of 2% over the rate of inflation (as measured by RPI) applied from 6pm on March 23. The duty element of a pack of 20 cigarettes increased from £2.38 to £3.10 (that’s 72p a pack) accompanied by a reduction in the ad valorem tax element from 24% to 16.5% of retail price, which was intended to reduce pricing differentials between ’cheap’ and ’expensive’ brands. The effect of these two changes resulted in an increase of around 30p in the retail price of a typical pack of 20 cigarettes.
An additional increase in duty of 10% on hand rolling tobacco.
No additional changes to duty rates beyond those already due from the previous Budget. In other words, the increases of 4p a pint for beer, 15p a bottle on wine and 54p a bottle on spirits were left in place, and came into effect on March 28.
A further increase in duty on higher-alcohol beers (those more than 7.5% ABV) is due on October 1.
Of more general interest to businesses and individual taxpayers, there were measures affecting personal tax allowances and corporation tax rates:
personal Tax allowances
Rising to £7,475 from April 6 2011 (as previously announced), with a further increase to £8,105 from April 2012. The part that isn’t often highlighted is that the earnings figure at which higher rates of tax start to apply is cut at each of these dates.
Corporation Tax rates
A surprise cut of 1% from this month, taking the mainstream rate down to 26%, and further cuts planned down to 23% by April 2014. There was less joy as far as small businesses were concerned:
the rate for profits below £300,000 drops to 21% for 2011/12, but no information has been provided by the Treasury as to any planned rate after 2012.
Income Tax/NIC merger
There was some late speculation before the Budget that the government was thinking of a really radical move to effectively abolish National Insurance as a separate, almost hidden, tax and simply extend income tax to cover the cost. That proved to be a proposal too far, at least for this Budget, but the Chancellor has announced a long-term study to look at the feasibility of doing this. Don’t expect to hear the results before the end of this Parliament though.
As usual, some of the more ’interesting’ measures in any Budget tend to receive only a passing mention during the Chancellor’s Budget speech, with the details buried in the fine print of documents released by the Treasury in the months that follow. One such item this year is a promise to "crack down on tax avoidance by closing down schemes which disguise remuneration, avoid corporation tax, VAT and Stamp Duty Land Tax". Just that single bland sentence opens a great many possibilities for HMRC to look deeper into the day-to-day financial records and transactions of all businesses.
At the time of going to press there was no further information about exactly what this crack down will actually involve, or when or where it will start.
Two final points to remember about the March 2011 Budget: Firstly, that while a lot of the headline announcements referred to ’no changes’, they really meant ’no changes other than those previously announced’. It’s become increasingly common over the past decade or so for the government to announce planned changes to tax rates and allowances several months, and often years, in advance. The increases then come into effect by stealth.
Secondly, as far as many of those increases that do make the headlines are concerned, the bit that gets overlooked is that they are ’x’ amount above inflation. Inflation as measured by RPI was 5.5% per year in February, or 4.4% as measured by the CPI method. The rates are expected to stay at around the same level for the rest of this year. However ’generous’ the Chancellor may appear to have been in respect of fuel prices, rest assured we’ll all be paying the price somewhere else, sometime soon.