Two leading business groups have called on the Government to ease the pressures that fuel duty is imposing on businesses.
The Federation of Small Businesses (FSB) has said that a fuel duty stabiliser needs to be introduced to spare smaller firms extra costs.
A fuel duty stabiliser is a mechanism that ensures an automatic freeze on fuel duty increases and a reduction in duty to match any increases in VAT revenues from higher pump prices.
The effect would be to reduce the tax on petrol and diesel as the price of oil rises, and visa versa, in order to keep fuel prices relatively constant.
The FSB argued that the UK has the second highest diesel prices in Europe.
In Europe, on average, a litre of diesel is made up of 51 per cent product price and 49 per cent tax.
Whereas in the UK the average is 38 per cent product price and 62 per cent tax.
In real terms, fuel duty will rise by one per cent above inflation each year from April 2011 to April 2014, the FSB added.
Worried that small businesses will not be able to sustain such high prices, the FSB wants future fuel duty increases to be scrapped and a fuel duty stabiliser to be implemented.
John Walker, the FSB’s national chairman, said: “The country’s small businesses are not just hard-hit by the recent VAT rise, but also by record high fuel prices which has come at the most fragile of times. Small firms, such as the haulier and the taxi driver, will all be severely affected by this rise in fuel duty. Unlike big businesses, they will have to pass the cost onto customers at a time when they already have to deal with the VAT hike.
“It is imperative the Government acts now and introduces the stabiliser to avoid a relentless flow of fuel duty increases that simply put small firms on a knife-edge.”
Meanwhile, the Forum of Private Business (FSB) has added to the debate by saying that if a stabiliser is too impractical, the Government should simply reduce fuel duty in response to rapidly rising petrol prices.
According to some reports, the Office for Budget Responsibility (OBR) regards a stabiliser as too costly to implement.
Phil Orford, the FPB’s chief executive, commented: “Both high and fluctuating fuel prices cause serious problems for smaller companies and their cash flows, so we would welcome any attempts to tackle the problem.
“Obviously, smaller firms in the haulage and transport sectors are particularly badly hit by ever-increasing prices at the pumps but companies of all types ultimately suffer the inflationary knock-on effects, as costs are passed on and consumers have less disposable income to spend.
“The spiralling cost of unavoidable expenses like fuel and utilities are one of the main problems facing smaller businesses at the moment. The utility companies claim their prices can’t be reduced due to rising wholesale costs. However, the price of a litre of fuel could be reduced at a stroke by the Government as almost three quarters of the price paid at the pumps is simply tax.
“If the fuel price stabiliser is again deemed to be unworkable, a significant reduction in duty – or perhaps a reclassification of the VAT rate on fuel – is desperately needed to help keep businesses moving. It is widely predicted that oil prices are only going to keep rising over the long term so perhaps there is little need for a stabiliser mechanism anyway.”
Mr Orford added: “I appreciate the Government needs to tackle the national debt, but it would be self-defeating if economic recovery is derailed due to excessive taxation on something which is absolutely central to modern commerce.”
