EU Call To Cut Fuel Duty 
9 September 2001

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EU calls on Britain to cut fuel tax

The European commission will this week reignite controversy over the high cost of motoring in Britain by demanding a 10% cut in the price of petrol. The proposal to reduce fuel tax will put the commission on a collision course with Gordon Brown, the chancellor, who presides over the highest rate of tax on petrol in the European Union. It could reduce the average price of a litre of unleaded petrol from 78p to 71p, but would cost the Treasury billions in lost revenue. Commission officials said the reforms, aimed at harmonising levels of fuel tax across Europe, were "inevitable" because wide variations were distorting the common market.

"Firms in Britain are taxed twice as much for transport fuel as their rivals in Greece, so how can they compete?" said Gilles Gantelet, a spokesman for the commission's directorate-general on transport. "We have to harmonise excise duties to create a proper competitive environment for road transport." The move will revive the controversy over fuel prices that threw Britain into chaos last year and created a crisis for Tony Blair, the prime minister. Thousands of petrol stations were closed as hauliers and farmers, angry about rising fuel costs, blockaded refineries.

If the government vetoes the commission's proposals, it risks further public anger. Brussels has implicitly taken sides with British hauliers and motorists, who have complained repeatedly to officials about excise duty levels. Fuel in Britain is the costliest in Europe, despite being some of the cheapest before tax. A litre of unleaded petrol priced at 78p in Britain can be bought for 47p in Greece, 49p in Luxembourg, 56p in Ireland and 64p in France. The commission's white paper on transport, to be unveiled on Wednesday, will set out proposals for standardised excise duty. It would increase fuel costs where they are cheapest and reduce them in the most expensive countries.

"With the road transport sector now fully opened up to competition, the absence of harmonised fuel taxes is increasingly an obstacle to the smooth functioning of the internal market," the document says." Excise duties differ enormously from one country to another, ranging from 20p per litre on unleaded petrol in Greece to 50p per litre in the United Kingdom. In the medium term, petrol and diesel should be taxed similarly for all consumers." The reforms are designed to create a fair market for businesses, but would benefit private motorists because officials believe it is not practical to distinguish at the pump between fuel sold for private and business journeys.

Officials believe the standard level of duty should be linked to the current average level across the 15 member states, currently about 40p a litre. Initially, individual states would be free to fix excise duty within a band around the average, allowing governments to take account of other transport taxes, such as tolls or annual vehicle taxes, which affect the overall cost of motoring. That could still reduce excise duty on fuel in Britain by an average of 15%, or 7.5p per litre, according to commission officials. The Treasury made it clear that it would oppose the move, which would cost about 4 billion a year in revenue, the equivalent of about 1.5p on income tax. "Taxation and the setting of taxes is a matter for individual member states, not the European commission," said a spokesman.

"This year's budget introduced an affordable and targeted package of measures to reduce costs to motorists." The Treasury may be forced into a U-turn by pressure from Brussels and continuing public dissatisfaction. The government would have to explain why it opposed standard excise duty levels when the principle was agreed in 1992 by John Major's government. Motoring and road transport groups are already urging the government to accept the commission's proposals.

"In view of the sensitivity over fuel prices and the amount of tax, it would be unpopular for the government not to go along with it," said Paul Watters, head of road and transport policy for the Automobile Association. The Road Haulage Association, which has lobbied the commission over disparities in the price of fuel, said the proposals were fair, particularly at a time of an economic downturn.

"British hauliers pay more for fuel than their counterparts in any other European member state, so as far as we are concerned this is good for the industry," said a spokesman. Excise duty on fuel could theoretically be decreased by statutory order without the need for primary legislation.