Taxing issue for UK's motorists

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LONDON (CNN) - While petrol prices across Europe include a large percentage of tax, no motorist pays as much for fuel as those in the UK.

European Commission figures for April 1999 show that 81 percent of the price of a litre of petrol in the UK was made up of tax. In Spain, motorists paid 68 percent tax; in Austria, the figure was 69 percent; in Greece, 66 percent. Only the level of tax in France came close.

The Automobile Association (AA) calculates that for every £10 a British driver spends at the pump, at least £7.50 goes to the government.

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The UK's high fuel taxation dates back to 1993, when the Conservative government introduced a fuel "escalator" which put up the cost of petrol by a minimum of three per cent above the rate of inflation.

This "escalator," the aim of which was to encourage people to use public transport, thereby reducing congestion and helping to cut greenhouse gas emissions, later increased to five percent and then, under the Labor government, six percent.

Although the "escalator" was abandoned in the Budget in March, fuel tax remains high, not least because of the price of crude oil. Eighteen months ago, a barrel cost $10 and now stands at around $26, down from a high of $30 a barrel.

While oil companies have been criticised for being too quick to pass on price increases to the consumer, and too slow to pass on cuts, figures from the independent Oil Prices Assessment Limited show that - once duty and Value Added Tax are excluded - the cost of a litre of unleaded petrol varied by less than six pence between 1989 and 1999. Yet the price at the pumps in Britain during the same period rose five-fold, by more than 30 pence (see table).

The Treasury, which estimates that revenue from fuel tax will top £23 billion this year, says a two pence reduction in fuel duty would cost the country around one billion pounds.

A spokesman said: "The people who are demanding a cut in petrol prices should be prepared to say where that money should come from to fund schools and the health service."

Unlike many other European governments, Britain has no income from motorway tolls and the absence of any mention of such tolls in the government's recently announced 10-year transport strategy suggests they will not be introduced in the near or distant future.

Meanwhile, while it is against reducing the high level of tax on fuel, the environmental campaign group, Transport 2000, wants more of it to be invested in improving the public transport system.

Michael Jones, of the AA, says the public's perception of public transport is a major problem for a government trying to combat congestion on Britain's roads.

"Rightly or wrongly it's seen as too dirty, too expensive and not reliable enough," he said. "And people are refusing to be taxed out of their vehicles."

Despite the cost of fuel, between 1989 and 1999 the number of cars on the roads went up by three-and-a-half million. It seems that while Britons may not like high fuel taxes, their love affair with the car is stronger.

European fuel prices even higher than those in U.S.
March 13, 2000

The European Commission
The Automobile Association UK

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