Surging retail prices for unleaded and diesel have resulted in an extra £61.4m landing in the Treasury’s coffers in under a month.
While fuel duty is fixed at 52.95ppl (though this is set to rise by 5p by March next year), VAT takes stand at 20% of the total cost of fuel, so have risen alongside pole-sign prices.
The RAC Foundation estimates the recent spike in prices brought about by the conflict in Iran, which has seen diesel go up by 38.8ppl in the last month, and unleaded 19.2p, resulted in Brits spending an additional £307m on fuel between 27 February and 24 March.
With a fifth of that extra cost comprising VAT, which is applied to duty as well as fuel itself, the government has taken an estimated £61.4m extra in VAT compared to if prices had remained stable over the last month.
Government sources told The Times that the extra cash will be used to help “shield” consumers from rising fuel and energy bills, though the RAC Foundation highlights that “the Treasury currently receives roughly half of what people pay on the forecourt”.
Steve Gooding, director of the thinktank, commented: “Fuel consumption is notoriously inelastic, to use economics jargon, which means that – certainly in the short term – people have little option to change the way they live and so they are stuck with footing the refueling bill despite the increase in cost.”
He added: “Even if the conflict was resolved tomorrow the pain at the pumps will be felt for weeks to come, or longer, due to the time lag between changes in the barrel price of oil and what fuel costs at the pumps, and the time it will take to repair the war damage to oil production, refining and distribution.”
