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Thursday, 10 May, 2001, 12:38 GMT
Q&A: The fuel tax cut
A bar chart showing the rising price and components of a litre of fuel

The political background

The fuel price row is the only time since 1992 that the Conservatives have shown signs of wiping out Labour's long-standing opinion poll gap.

The issue, and strength of feeling of motorists, took UK politicians by surprise and heralded a swift U-turn in policies on fuel tax - which makes up three quarters of the price of a litre of petrol.

Shortly after last September's protests Gordon Brown announced that fuel duty would fall by 2p a litre in his Budget this year, a pledge which was confirmed in March.

That did not go far enough for the Tories, however, who pledged to cut a further 3p off the price of a litre of fuel.

In their manifesto they are now pledging to double that cut to 6p a litre, or 27p a gallon. It will cost 2.2bn a year.

William Hague described fuel tax as an unfair, indiscriminate, tax, saying the cut was a way of helping pensioners, families and the disabled.

Tony Blair said the fuel tax and other cuts were irresponsible promises.

Liberal Democrat leader Charles Kennedy - in Southampton on his flying tour of the UK - was also scathing, saying Tory sums would unravel during the course of the campaign.

What makes up the price of a litre?

The vast majority of the money paid at the pump goes straight into the government's coffers.

In the UK fuel duty and VAT account for more than three quarters of the price

Because VAT is charged on the price of fuel including fuel duty, the Tory pledge to cut 6p off fuel tax, is likely to mean about 5p cut from fuel duty. It becomes 6p because the 17.5% VAT charged on it is lost.

Why is fuel tax so high?

In 1993 the Conservatives introduced the Fuel Price Escalator which raised petrol prices at 3% and then 5% above the rate of inflation.

By the time Labour came to power in 1997 the escalator, which was sold on the environmental grounds of discouraging car use, had added 11.1p to the cost of unleaded fuel.

In his first Budget Gordon Brown put a further 3p on a litre and then 2p more in March 2000, when he also scrapped the price escalator.

Since the fuel protests he brought in measures which he claims are equivalent to a 4p cut in fuel duty.

So petrol prices will fall by 6p a litre if the Tories win...

In the short term the answer is that they should, if oil companies do not take the opportunity to add a few more quid to their huge profits.

But in the medium term, falls and rises in the price of fuel depends largely on the global oil price.

If oil prices remain steady, the price should fall by 6p. If oil prices rise the cut may be smaller. If oil prices fall the overall cut in prices should be bigger.

Who will benefit from the cut?

William Hague says that the cut will help pensioners, rural communities, families and the disabled, all of whom have to pay fuel tax when they drive, whatever their personal wealth.

It will also benefit the hauliers whose blockades brought the UK to a virtual standstill last September.

In short, those who own and use a car, or cars, most will benefit the most.

What about the environmental case for high petrol prices?

The fuel escalator was introduced by the Conservatives with one of its aims to reduce car use and so help the environment.

Tory shadow chancellor Michael Portillo says that prices have reached the top of the escalator and that the environmental argument is now spurious.

While the Green Party and Liberal Democrats oppose a cut on environmental grounds, there is a question mark over whether fuel tax levels have any significant effect on car use.

Evidence from one academic study suggests that, at least in the short-term, the number of passenger miles travelled in a car does not fall greatly as taxes rise.

But Transport 2000 says that during the past four years, while petrol prices have been relatively high, traffic growth has slowed and is now close to zero.

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