The Government is taking in less tax on fuel sales despite increasing fuel duty.

According to AA research into the Government’s latest fuel retail sales figures, in the first quarter of 2009, falling retail sales of fuel and diesel produced £97.3 million or 2% less in fuel duty income than in the same period last year.

This was despite a 2p fuel duty increase to 52.35p a litre on 1 December 2008.

By the first quarter of 2010, fuel duty will have risen a further 7.34%.

Despite a collapse in fuel prices into the early part of January and gradual recovery to 90p a litre through to March, retail sales figures from the Department of Energy and Climate Change show that UK petrol stations sold 212,000 fewer tonnes of petrol and 220,000 fewer tonnes of diesel.

The shortfall reduced fuel duty revenue from £4,829m in the first three months of 2008 to £4,732m in the first three months of this year.

 

Much of this fall in forecourt sales can be accounted for by the UK moving into recession, leading to lower business activity and drivers cutting back because of pay freezes, redundancy or reduced income from savings.

However, soaring fuel prices in 2008 had already started the trend with 331,000 fewer tonnes of petrol and 18,000 fewer tonnes of diesel sold from retail outlets during the July-September 2008 period of record fuel prices, compared to the same period in 2007.

Comparing first quarter fuel retail sales during the past four years of high oil and fuel prices, the treasury has been getting a diminishing return from increased fuel duty.

Comparing 2006 with 2007, fuel duty rose 2.65% and increased tax revenue 6.77%.

However, the 2007 and 2008 comparison shows that fuel duty rose 4.14% but increased tax revenue 6.50%.

“What is the point of increasing fuel duty if it helps push the price of fuel to a level that more and more drivers can’t afford?

"The Government gets less tax and a large section of the electorate gets riled,” says Edmund King, the AA’s president.

 

“Would it not make more sense to freeze or even reduce fuel duty while drivers and families are struggling, particularly if the public purse isn’t getting any benefit from duty increases?

 

“With the 1.84p increase this past April and another 2p coming in September, fuel duty will be up to 56.19p a litre during the next first quarter - helping to push the norm for petrol closer to the psychologically-important £1 a litre.

"Escalating fuel prices, particularly once the global economy gets back on its feet and energy demand returns, is likely to undermine the tax potential from fuel duty as drivers cut back.

"The Government can claim that this is good for the environment, but higher prices and depression are already doing the job without having to increase the tax burden.”

 

“Politicians, both local and national, are going to have to realise that milking the motorist can’t go on for ever. Increasingly, the money will dry up.”