Fuel protest costs treasury £2bn yearly

By Roger Harrabin
BBC Radio 4 Today programme correspondent

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

Protests by the People's Fuel Lobby caused major traffic problems

The source confirmed a report of 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 £3.5bn before long.

The Treasury source would not comment on future tax plans.

Mr 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.

More affordable motoring

The latest figures show that between 1977 and 2003 incomes rose 28.8%, bus and coach fares 24.6%, rail fares 18.6% and motoring costs 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 first mooted road pricing in the early 90s but then opposed its introduction in London

The Conservatives said Labour has still hugely increased the tax taken from drivers, even if motoring had become more affordable.

Tim Yeo, the Conservative 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.