CALL TO CUT DUTY ON FUEL IF PRICE STABILISER WON'T WORK
January 7 2011

A small business support organisation is calling on the government to cut fuel duty if its proposed 'fuel price stabiliser' proves too impractical to implement.

With the recent VAT increase and widespread predictions of permanently high oil prices, the Forum of Private Business is arguing that a straightforward reduction in duty would be the simplest way to tackle soaring prices at the pumps.

The Forum made the call in response to new comments from the Prime Minister, David Cameron, in which he signalled that the government was again looking into the idea of a fuel price stabiliser.

The stabiliser would be a mechanism designed to reduce the tax on petrol and diesel as the price of oil rises, and visa versa, in order to keep fuel prices relatively constant.

The idea was originally proposed in the Conservative pre-election manifesto but appeared to have been dropped after the Chancellor, George Osborne, instructed the Office for Budget Responsibility (OBR) to look into it. According to reports, the OBR claimed that the stabiliser would be too impractical and costly to implement.

If the same conclusion is reached again, the Forum believes the government should simply cut the duty it charges on fuel - reversing recent increases at the very least.

This, the Forum is arguing, would help secure economic recovery and help the millions of smaller businesses across the UK which are struggling with the current record prices on the forecourts.

Forum chief executive Phil Orford said: "The idea of the fuel price stabiliser was sold to the public quite heavily by the Conservatives before the election and we supported it from the outset.

"Both high and fluctuating fuel prices cause serious problems for smaller companies and their cashflows, so we would welcome any attempts to tackle the problem.

"However, since gaining power, Mr Cameron's government has failed to follow through on the stabiliser concept. Instead, it has actually increased duty on fuel by going ahead with two rises inherited from the previous administration, and effectively implemented a further price hike this month with the 2.5% increase in VAT.

"Obviously, smaller firms in the haulage and transport sectors are particularly badly hit by ever-increasing prices at the pumps but companies of all types ultimately suffer the inflationary knock-on effects, as costs are passed on and consumers have less disposable income to spend.

"The spiralling cost of unavoidable expenses like fuel and utilities are one of the main problems facing smaller businesses at the moment. Our recent 'Economy Watch' research found that, despite an upturn in sales and orders, SMEs are struggling to maintain their profitability because of these increased costs, so the issue is threatening economic recovery.

"The utility companies claim their prices can't be reduced due to rising wholesale costs. However, the price of a litre of fuel could be reduced at a stroke by the government as almost three quarters of the price paid at the pumps is simply tax.

"If the fuel price stabiliser is again deemed to be unworkable, a significant reduction in duty - or perhaps a reclassification of the VAT rate on fuel - is desperately needed to help keep businesses moving. It is widely predicted that oil prices are only going to keep rising over the long-term so perhaps there is little need for a stabiliser mechanism anyway."

Mr Orford added: "The debate over fuel prices is often skewed by the wider environmental debate.

"But the fact remains - our economy currently relies on transport, and therefore oil, at virtually every level, and until alternative technology become widespread and affordable, businesses have no choice but to use petrol and diesel in order to function.

"I appreciate the government needs to tackle the national debt but it would be self-defeating if economic recovery is derailed due to excessive taxation on something which is absolutely central to commerce."

Research carried out by the Forum in November found that many small businesses experienced a rise in orders and turnover towards the end of 2010.

Almost one in three (30%) members on the Forum's 'Economy Watch' panel saw increases in their order books and turnovers, with only 16% reporting a decrease.

Business for the remaining 54% stayed steady between the Forum's previous survey in mid October and the late November study.

However, many business owners on the panel also reported a sharp drop in profitability during the same period as increases in fuel costs, energy prices and raw materials hit home.

At 46%, almost half of the firms surveyed said they had seen a recent increase in the cost of doing business, with only 1% reporting that costs had fallen.

As a result, 27% of Economy Watch panel members reported a decrease in profitability since they were last surveyed in October, compared to just 14% who reported an increase.