The Chancellor is being urged to scrap a planned fuel tax increase that will add up to 5p to the cost of a litre of petrol from April 1.
The increase would overwhelm small businesses, thwart the recovery and heap yet more pressure on hard-pressed households, independent petrol stations warn the Chancellor in a letter seen by The Times.
Under the “fuel escalator” devised by the previous Labour Government and endorsed by the coalition, pump prices are set to rise by 1p on top of inflation every year to 2015. Even without this increase, forecourt prices reached record highs yesterday of 132.3p per litre for unleaded petrol and 138.2p for diesel.
The Government is accused of hiding behind a perception that prices will rise by just 1p after the Budget. However, Treasury officials acknowledge that the full impact will be at least 3.7p per litre. Using data from independent economists, motorists may have to pay 5p more per litre from next month. Some analysts warn that if the political turmoil in North Africa continues, forecourt prices could rise to 150p per litre by Easter.
The Treasury is acutely aware of the political risks of sharply higher fuel costs. George Osborne told the Conservative Party spring forum at the weekend that he understood the pain felt by “squeezed” households. “I promise you I am doing everything I can to find a way to help,” he said.
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Brian Madderson, chairman of RMI Petrol, which represents two thirds of British petrol stations, said in his letter to Mr Osborne: “The escalator of 5ppl due on April 1 will be a duty tsunami that will engulf the entire nation, especially small/medium sized businesses and the hard-pressed householders, and stifle economic recovery.”
Record forecourt prices are also boosting crime. Gangs are stealing diesel from storage tanks, while petrol stations report an average of six drivers a month driving off without paying.
Average pump prices for unleaded petrol are now 17.76p per litre higher than a year ago. It costs £8.88 more to fill up a 50-litre tank, raising average monthly fuel bills by £18.86, according to the AA.
The Treasury currently charges 58.95p per litre in fuel duty and has levied 20 per cent VAT since January. Under its planned formula it will add 1p more from April 1 on top of the RPI inflation forecast for the third quarter of the year.
Michael Saunders, an economist at Citigroup, predicts that this will be 5.8 per cent. If the fuel escalator and VAT are levied as planned, this would give a 5.3p increase from April 1.
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Prices would rise even further if instability in the Middle East and North Africa pushes crude oil prices higher. Brent North Sea crude was trading at $115 a barrel yesterday, but dealers predicted that prices would pass the record $147 if turmoil continues. Refiners say that every $2 increase leads to a 1p increase in wholesale petrol prices.
Mr Madderson argues that fuel duty should actually be cut by 2p per litre because RMI calculates that the Government has enjoyed a £4.3 billion windfall from North Sea oil and a further £2.2 billion from higher VAT.
Kerry McCarthy, the Shadow Treasury Minister, called for fuel to be VAT-exempt, saying: “George Osborne needs to stop dithering and act now.”