FTA warns against £325m increase in fuel-tax bills

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3p fuel duty increase planned for next year by chancellor George Osbourne

The Freight Transport Association has warned chancellor George Osbourne against pressing ahead with a 3 pence per litre (ppl) fuel duty increase from January 1, 2012.

The FTA’s latest Quarterly Transport Activity Survey shows operators are more downbeat about business activity and freight volumes than at any time for the past two years. As well as facing weak levels of demand, operators must deal with near record diesel prices, which are close to the all time highs seen in April this year. At that time the chancellor took the decision to cut road fuel duty by 1.0ppl, recognising the cost of fuel is a very difficult issue and a concern to many families and businesses across the country.

If the chancellor goes ahead with the fuel duty rise planned for January it will land industry with an annual bill of £325m. The FTA said this would lead to more redundancies, and more businesses pushed into financial difficulties, further damaging the economy.

Simon Chapman, FTA’s chief economist, said: “With the economy stalled, the imperative for the chancellor is to get the wheels of industry turning once more. Industry relies on diesel to move goods around the country, with diesel costs representing over a third of the costs of transport. A hike in duty at this time leaves carriers with nowhere to go. Higher costs can’t be passed on to customers, who are looking to reduce costs to offset lower levels of business activity.

“Nor will rate rises wash with consumers, whose disposable income has been progressively eroded by the steady rise in inflation. Trading conditions are still incredibly tough, especially for an industry with typically tight profit margins, and it simply doesn’t make sense for Government to make things tougher.”

The price of diesel has risen by over 13ppl (13.9%) in the last year, representing an additional cost to the road freight operating industry of £1.4bn.

Overall, commercial vehicle operating costs have risen by 6.2% in the last year while over the same period haulage rates have risen by 4.5%. As a result, profit margins, which are typically less than 3% in the haulage sector, have been under significant pressure.

Chapman concluded: “Business understands the need for the government to balance the books of the public accounts. However, the planned January rise would be an ill-judged triumph of short term gain over long term pain. Industry will have no option but to look to 2012 as a further year of retrenchment. That means scaling back on capital investment, putting further downward pressure on real-term pay levels and laying staff off where business volumes are simply not there.

“As partners in the Fair Fuel UK campaign, we have amassed massive public and commercial support for a fairer deal on fuel duty. The chancellor’s Autumn Statement must encourage growth, support employment and alleviate pressure on businesses by committing to a fuel duty freeze throughout 2012.”