Fuel duty cut

The Institute of Directors has called on the UK Government to consider cutting fuel duty as a matter of urgency.

The Institute of Directors(IoD) has called on the UK Government to consider cutting fuel duty as a matter of urgency ahead of expected fuel protests expected in the UK this week. The cut should then remain in effect until oil prices return to the levels of earlier in the year. The plea comes as the price of petrol hit £1 a litre at some pumps.

“Our members, the people who are running businesses across the country, are being badly hit by the dramatic rise in their fuel bills. This does not only hit transport costs, but with winter coming it will have a very heavy impact on heating bills. These pressures are likely to significantly erode profitability at a time when many businesses are already gloomy about their commercial prospects,” said IoD Chief Economist, Graeme Leach.

“We urge the Chancellor to impose a temporary cut on fuel duty and at the same time extend the current freeze throughout 2006. It is the size of the rise in such a short timescale that is hurting businesses the most; a temporary cut may be a way of easing some of that pain and allowing our members time to adjust to what may be a prolonged period of high oil prices,” he added.

The IoD pointed out that the so-called fuel escalator (inflation plus increases in Fuel Duty) was removed in 2001 and replaced by inflation indexation at about 2p per litre. In 2002, the Government imposed a freeze on fuel duty, but inflation indexation returned in 2003. A freeze on fuel duties was again introduced in 2004 and continued into 2005.

The Chancellor used his March 2005 Budget to defer an increase and in July the Treasury announced that the increase in fuel duty due this month was being postponed. The Treasury says it will again review whether to raise the tax in the November Pre-Budget Report.

The IoD also called on fuel protesters, due to meet later this week, to consider the impact on business that blockades of refineries could have.

“Although we understand the frustrations of the fuel protestors who will be meeting later this week, we would urge them to avoid causing the widespread disruption of September 2000. Those protests costs British business around £1bn in lost output. That could be catastrophic for many businesses in today’s economic climate,” Leach said.