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Page last updated at 13:46 GMT, Friday, 30 May 2008 14:46 UK

Q&A: Europe fuel protests

Refuelling a car (file pic)
The oil price surge has hit drivers

European governments are under pressure to soften the impact of high fuel prices that are hitting fishing fleets and road hauliers particularly hard.

Fishermen have been staging protests in France, Spain, Portugal, Belgium and Italy. UK and Dutch lorry-drivers have held similar protests.

Why doesn't the EU simply reduce fuel taxes?

EU rules state that the value-added tax (VAT) rate on fuel cannot be less than 15%. That minimum rate also applies EU-wide for numerous goods, including cars and domestic appliances. Member states are free to set VAT rates at or above that minimum.

Lower rates can be set, however, for some essential goods, such as baby food and children's clothes.

Changing the way VAT is set EU-wide would require a proposal from the European Commission and the unanimous agreement of all 27 member states. EU finance ministers agreed in 2005 that they would avoid using tax cuts to deal with high oil prices.

The other tax component in the fuel price is excise duty. There is a minimum EU-wide rate for that: 330 euros (260; $514) per 1,000 litres (220 gallons) of diesel, a tax official at the European Commission told the BBC.

Fisherman arrested during protest in Quimper, Brittany
Protests around France have led to arrests
Member states have to respect that minimum, but there is no maximum. There is an exception for the new EU member states - mostly former communist countries - which can go below 330 euros. Excise duty in the UK is far above the 330-euro rate.

The European Commission says cutting fuel taxes would send the wrong signal to producer countries - it could encourage them to raise prices again.

Such a move would also undermine the EU's environmental agenda, the commission argues. Tax is a way to discourage people from relying on their cars - so it is a tool in the campaign to cut greenhouse gases.

If the EU won't cut fuel taxes, what does it propose instead?

The commission prefers states to find national solutions for the specific problems affecting fisheries, road hauliers and other fuel-hungry sectors.

It argues that businesses can already claim back VAT in their tax declarations - and governments can introduce tax allowances for hard-hit workers in sectors that guzzle fuel.

Are any European leaders urging the EU to change the rules?

French President Nicolas Sarkozy has proposed capping VAT on fuel when prices rise too high. But he acknowledged that such a move would require his European partners' support.

The chairman of the eurozone group of finance ministers, Jean-Claude Juncker, said Mr Sarkozy's proposal deserved discussion, but he also stressed the importance of a previous agreement on taxation.

The commission's spokeswoman on taxation, Maria Assimakopoulou, said "the question of taxes comes up very often, but still we have doubts if it is the best way to react in these cases".

The UK Prime Minister, Gordon Brown, has called for "global solutions" to help bring oil prices down. Britain levies the highest fuel duty in the EU.

Can EU governments subsidise hard-hit sectors?

EU competition rules forbid state subsidies for ailing sectors of a nation's economy.

Fisheries Commissioner Joe Borg says that "fuel subsidies, besides being illegal, would do absolutely nothing to deal with the underlying problems".

He urged member states, national fisheries and the commission to "work together to create a smaller, more fuel-efficient fleet that is better matched to fishing possibilities".

Raising fishing quotas to help struggling fleets would only endanger fish stocks, he said.

The commission says the sector needs to address structural problems - fleet overcapacity, and fuel-guzzling equipment and practices.

The commission does allow state rescue aid - but only for the short period necessary to develop a restructuring plan. Such aid is limited to six months, it must be in the form of a reimbursable loan or guarantee, and it has to be assessed by the commission.

Targeted payments approved by the commission can also be made from the European Fisheries Fund (EFF).



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