Soaring pump prices and the 2.5% increase in VAT on January 4 have added almost 5p a litre to the government’s tax-take from VAT on petrol over the past year, says the AA.
VAT from diesel sales has risen nearly 6p a litre, and VAT on a tank of petrol has gone up £2.47 in the past 12 months, meaning a family with two petrol cars has to pay an extra £10.49 tax a month to the Treasury.
A litre of petrol, costing on average 132.61p a litre, generates 22.10p in VAT, up 4.94p from a year ago. Petrol then cost 115.25p, with 17.5% VAT producing 17.16p a litre tax for the government.
VAT from diesel has risen from 17.29p a litre a year ago to 23.10p now, up 5.81p a litre, reflecting prices that average 138.60p now compared to 116.11p this time last year.
Even if VAT had stayed at 17.5%, the tax-take over the year would have been 2.76p a litre higher for petrol and up 2.89 for diesel, courtesy of soaring prices.
Edmund King, the AA’s president, said: “The government is enjoying an extra 2.18p a litre from petrol and 2.92p from diesel, following the VAT increase at the start of the year. The AA argues that stock market and Middle East-boosted oil prices are already bringing in substantial additional income for the government – £1.34m extra a day from petrol sales alone.”
“With rising pump prices bringing in even more additional VAT income, the government would still enjoy the significant boost to national finances without pushing ahead with the fuel duty increase on April 1. With many drivers already forced to cut back on car use and petrol sales down by at least 3.4%, the fuel duty increase will not only push more drivers into road fuel poverty but undermine fuel duty revenue.
“The last government predicted a £0.2bn fall in fuel duty receipts from higher pump prices in 2009-10, but still went ahead with a fuel duty escalator. They expected that receipts from 2010 onwards would fall another £0.7bn a year if oil prices rose $20 or more a barrel. Drivers hope that the coalition government will recognise in next week’s budget that a further fuel duty increase on top of soaring pump prices will weaken demand and hit the economy.”
An Opposition debate on VAT and fuel prices is expected to take place in Parliament today.