PRA chairman Brian Madderson has called on the Chancellor to heed his own words and keep fuel duty down in next week’s Budget.
Five years ago, the Chancellor “put fuel in the tank of the British economy” by freezing fuel duty and leaving more cash in the hands of hard working families and businesses. This led to more goods being purchased and more people being hired.
“The Chancellor must keep duty down following the extraordinary rise in wholesale cost of fuel that we have seen in recent weeks,” said the Madderson.
“Motorists and businesses should expect a rapid rise in pump prices in the days ahead of around 5ppl. The Chancellor should heed his own words about putting fuel in the tank of the British economy.”
The Treasury published a paper in 2014 that proved that the additional spending generated more income tax and VAT than would have been raised by letting fuel duty rise.
This is because savings on fuel costs led to spending on other services. Retailers and transport firms use the savings to expand their businesses, while households increase spending on other services, the study says.
Madderson added: “I trust he is listening to the Treasury officials who argued in 2014 that the short-term gains that have been measured since the freeze was put into place will extend for decades, boosting GDP to higher levels than previously estimated.
“Fuel duty and VAT already represent around 75% of the average pump price purchase. A duty increase could take us back to the days of the haulage industry’s fuel supply blockades.”
Average diesel prices at the pumps, as reported by Experian Catalist, have risen in the past seven days, climbing from 101.57ppl on March 6 to 102.56ppl on March 10. On March 8 diesel became more expensive than petrol – 102.21ppl versus 102.15ppl for the first time since January 25.
City analysts are forecasting further weakening of sterling to as low as £1.20 versus the dollar in the months ahead as financial institutions worry over a Brexit vote in June. This would add another 3ppl to pump prices.
“If the Chancellor increases fuel duty by 2ppl next week as some officials have hinted, then the impact on our economic recovery and inflation will be further magnified. This would be massive blow to country as the overall effect could be a dramatic rise by as much as 10p per litre by the summer,” Madderson concluded.