VAT boosts fuel costs by 6p a litre over last year

It is not just soaring oil costs that have contributed to the increasing fuel prices, as The AA has calculated that the government is raking in as much as an extra six pence a litre in VAT compared to 12 months ago.

The motoring organisation calculated that the average litre of diesel, at 138.60p, generates 23.10p in VAT for the government at the new 20 percent rate, while last year's price of 116.11p produced 17.29p for every litre at the 17.5 percent VAT level, a rise of 5.81p.
Petrol is not far behind, with VAT income rising by 4.94p from 17.16p to 22.10p for every litre sold. The AA reckons that this will see a family with two petrol cars handing over an extra £10.49 a month to the taxman.

It points out that even if VAT had stayed at the same rate, the Treasury would be better off, to the tune of 2.76p a litre for petrol and 2.89 a litre for diesel thanks to increasing fuel prices.

"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 1 April," said AA president Edmund King

"The last government predicted a £0.2 billion fall in fuel duty receipts from higher pump prices 2009-10, but still went ahead with a fuel duty escalator," he continued. "They expected that receipts from 2010 onwards would fall another £0.7 billion 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."
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