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Tuesday 5th October, 2004

FUEL TAX DEFICIT

The Chancellor's decision to cave into the fuel protest four years ago is costing the government £2 billion a year, according to a Treasury source.

The source confirmed a report on the Economic and Social Research Council that the cut on duty on petrol and diesel has left an enduring hole in the Chancellor's coffers.

Research by Stephen Potter at the Open University and Graham Parkhurst at the University of the West of England calculates that if Gordon Brown continues to avoid inflation-proofing fuel tax rises, the loss to the Treasury will reach £3.5 billion before long. The Treasury source would not comment on future tax plans

Stephen Potter said this showed that far from suffering stealth tax rises over the past few years, motorists had enjoyed stealth tax cuts.

Meanwhile figures from the Office of National Statistics confirm that despite high oil prices, the cost of motoring including buying and running a car has actually gone DOWN since Labour came to power.

The latest figures show that since 1997 incomes have risen by 28.8%, bus and coach fares by 24.6%, rail fares by 18.6% and motoring costs by just 9.7%. This runs counter to Labour's original plan to encourage public transport and get people out of their cars.

The AA Trust agreed that overall motoring costs had fallen in real terms - but said the government should still spend more of its motoring taxes on transport. The Conservatives said Labour has still hugely increased the tax take from drivers, even if motoring had become more affordable.

Tim Yeo the Conservatives Transport spokesman confirmed that his party planned to increase the costs on gas-guzzling 4x4s in order to persuade drivers to buy less polluting cars.

The Tories' deregulation supremo John Redwood also re-iterated his personal opinion that road pricing was the best way ahead. This is still being debated by the Conservatives, who first mooted road pricing in the early 90s but then opposed its introduction in London.

The Conservatives introduced the fuel tax escalator in 1993 to combat climate change and raise finance for the Treasury by notching up taxes year on year. The tax rises did stimulate the production of more efficient vehicles and for a while actually slowed down the annual increase in traffic, according to Imperial College London.

But the fuel protest in 2000 persuaded the Chancellor to cut petrol duty and he's been swayed by campaigners not to increase it again.

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