Fuel tax surge 'should see duty hike scrapped'

The government is receiving hundreds of millions of pounds in extra taxation as a result of rising fuel prices, two business groups have claimed.

And the extra income is enough that it should scrap the 2p-per-litre rise in fuel duty scheduled for October, both say.

The British Chambers of Commerce (BCC) claims that higher than predicted North Sea oil prices have boosted the government's tax proceeds by £390 million since 1 April. It adds that soaring prices at the pump have netted VAT income of £115 million more than predicted, constituting a total windfall of £505 million.

According to accountants Grant Thornton, which provided figures to both the BCC and the Federation of Small Businesses (FSB), deferring October's fuel duty increase until April 2009 would cost the government £550 million.

"High fuel prices are crippling small business owners in every sector and in every area of the country," said FSB National Chairman John Wright. "Apart from the immediate extra costs to motorists of filling up at the pumps, spiralling petrol prices also have a knock-on effect on everybody in terms of more expensive food and consumer goods."

Calling for the introduction of an 'automatic adjuster' for fuel duty, he added: "A mechanism which automatically uses extra oil tax revenue to reduce fuel taxes would be an efficient, effective and fair way of delivering some relief to motorists of all kinds."

BCC director-general David Frost said: "With the Treasury estimates on [its fuel tax income] woefully out of line with reality, this £505 million windfall in less than two months must surely rule out the 2p rise scheduled for October."

"It is simply unjustifiable."

Earlier today, the price of crude oil reached a record $127-per-barrel high.