THERE is no longer any rationale for the government’s annual fuel duty ‘escalator’ and the Chancellor should scrap it in the March Budget, argues Mark Sinclair, director of leasing company Alphabet, in this special report.
THE original justification given for escalating fuel duty faster than inflation was to curb pollution, traffic levels and congestion. But these problems have all worsened from 1979 to 2007 even though governments twice imposed the escalator on businesses and motorists in that time.
In 2007 the price of oil almost doubled from $50 to over $90 a barrel and it is now anchored at over $110. Since 2007, traffic, congestion and carbon emissions from vehicles have all fallen. In fact, the government has recorded consecutive annual declines in traffic and congestion for the first time since the Second World War.
Meanwhile, fuel duty in real terms is now actually lower than it was 10 years ago. Obviously the escalator is not working and isn’t needed. It’s time for the Chancellor to admit that enough is enough, and cancel the duty increase scheduled for 1 April, taking the opportunity to abandon the escalator in the Budget.
Fuel price spike ahead
Analysis we’ve done at Alphabet suggests that firms and drivers could be facing a repeat of 2008, when oil prices spiked to $147 a barrel before falling briefly below $40. The price of diesel, the main fuel for business cars and company car fleets, could exceed £1.50 per litre before the summer.
Prices could fall quickly back toward £1 a litre but the respite would again be short-lived. The world has entered an era of structurally higher energy costs. Competition for scarce oil is driving up the cost of motoring.
Green car policies set to save customers £3 million
We have been advising our customers to tackle the problem by encouraging company car drivers to choose lower-carbon vehicles.
Focusing on lower emissions is something we consistently communicate. We’ve demonstrated time and again that fleets save much more money when they adopt CO2-driven Whole Life Cost policies rather than focusing solely on list prices or lease rentals.
The fuel efficiency of cars we’ve been supplying at Alphabet has increased by over 16% during the last five years. We believe this shift to lower-carbon cars will save customers £3 million at the fuel pumps over the next three years, despite rising fuel prices. As well as saving on fuel costs, these cars will cut emissions by an estimated 13,000 tonnes of CO2 between now and 2013.
The fuel duty escalator is due to increase the duty on fuel by 1p per litre above inflation on 1 April 2011.