Page last updated at 15:37 GMT, Sunday, 6 July 2008 16:37 UK

Tories propose fuel duty changes

George Osborne on plan to cut fuel duty

The Conservatives are proposing changes to the way fuel duty is calculated which they say would let government "share the pain" of rising prices.

Shadow chancellor George Osborne told the BBC the party was looking at plans to cut fuel duty when oil prices rise and increase it when prices fall.

If introduced last March, fuel would now be 5p a litre cheaper, he said.

The Treasury told the BBC the proposals were a gamble which could leave a 3bn hole in the public finances.

Fuel duty is due to rise in October but there has been speculation the increase will be delayed due to soaring oil prices.

'Drop hints'

Prime Minister Gordon Brown told senior MPs last week the 2p-per-litre rise would be looked at "very, very carefully" over the next few weeks. It has already been delayed once due to uncertainty over fuel prices.

But Mr Osborne told BBC One's Andrew Marr programme: "We are proposing a totally different way of doing fuel duty.

When the price of oil goes up, fuel duty comes down to help families, but the quid pro quo is that when the price of oil falls the duty goes up
George Osborne

"Under the current system you wait for Gordon Brown to drop hints at select committees or Alistair Darling to come on this programme to make hints about what he may or may not do with the 2p.

"Not only is that an insult to families who want some clear direction from the government, but it is also extremely destabilising for the public finances."

Record oil price

He said the consultation process on a "fair fuel stabiliser" would begin on Sunday and conclude by the end of the year when the party would come up with a fully worked-out proposal. The policy is not yet a firm party pledge.

"What this would mean is that when the price of oil goes up, fuel duty comes down to help families, but the quid pro quo is that when the price of oil falls the duty goes up," said Mr Osborne.

"So government is sharing the pain of rising oil prices, but the government is also sharing the gain when oil prices fall."

If George Osborne wants to be taken seriously, he needs to explain what assumptions he's making about the trend in oil prices
Vince Cable
Lib Dems

If the system had been introduced in the 2008 Budget, fuel would currently be 5p cheaper, the Tories said.

They calculate that under their system, drivers would save up to 3.50 on filling up a Ford Mondeo, or 2.60 for a Vauxhall Astra.

The motoring organisation AA welcomed the proposals, saying they had proposed a similar system in January.

No easy solution

AA president Edmund King said: "The government needs to review fuel duty as the price of a barrel of oil has doubled in just 12 months."

During questioning by senior MPs last week Mr Brown was asked why the government did not use higher tax revenues from rising oil prices to compensate people.

He replied that while tax revenues from oil might go up, the higher prices had a wider effect on the economy - so the government had less money from stamp duty, VAT and business taxes.

Treasury minister Kitty Ussher said: "George Osborne's proposal is a dishonest gimmick which would mean the Tories would have to hike up taxes somewhere else or would mean a massive hole in the public finances.

"Either George Osborne doesn't understand the way tax revenues work, or he's prepared to play fast and loose with the public finances for the sake of a good headline."

And Liberal Democrat Treasury spokesman Vince Cable, a former chief economist at Shell, said Mr Osborne was "presuming a knowledge of future trends in oil prices which is not shared by most people who look at these professionally".

He insisted the proposals opened "a huge hole" in Tory spending plans.

"If George Osborne wants to be taken seriously, he needs to explain what assumptions he's making about the trend in oil prices," Mr Cable said.

Last week, lorry drivers held a second demonstration in London demanding cheaper diesel and the price of Brent Crude oil hit a record high of $146 (74) a barrel for the first time in London.


SEE ALSO
Call for review of motoring taxes
04 Jul 08 |  Business
Brown hints at fuel duty freeze
03 Jul 08 |  UK Politics
Oil price hits yet another record
03 Jul 08 |  Business

RELATED BBC LINKS

RELATED INTERNET LINKS
The BBC is not responsible for the content of external internet sites


FEATURES, VIEWS, ANALYSIS
Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit

BBC navigation

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.

Americas Africa Europe Middle East South Asia Asia Pacific