Motorists and air passengers were among the biggest losers as the Chancellor
announced increases in taxes on petrol and long-haul flights over the next
two years.
Fuel duty
There will be a 2p a litre rise on fuel duty from Monday, eliminating any
gains for drivers from the temporary reduction in VAT, from 17.5 per cent,
to 15 per cent. Fuel duty will rise again by 1.8p a litre in April, meaning
that the tax will increase by nearly 4p a litre over the next six months.
Experts say that businesses will be even harder hit by these fuel-duty
increases. Andrew Jupp, of Tenon, the accountant, says: “The Government
claims that the 2p increase in fuel duty will be offset by the 2.5 per cent
cut in VAT, but businesses will not benefit from this because they are able
to claim back the VAT on fuel.”
Road tax
Drivers with so-called gas-guzzling cars have been spared a £90 increase in
road tax, as the Chancellor - yet again - revised vehicle excise duty (VED)
bands to ensure a maximum increase of £30 a year from 2010. The surprise
move dismayed environmental groups but provided some relief to drivers of
the most polluting cars, who are facing steep increases in the cost of
motoring.
At the moment there are seven bands for vehicle excise duty bands, from A to
G, with owners of cars in band A not paying anything, while those in band G
pay £400 a year. However, from April there will be 13 bands, from A to M,
with cars in bands F to M paying an additional £5 a year in VED. From April
2010 the rates will increase again for the most polluting cars, by up to
£30, but may decrease by up to £30 for the least polluting cars.
This is a significant climbdown from the measures that Mr Darling announced
only seven months ago in his Budget, when he said that road tax on
gas-guzzling cars would increase by up to £90 from 2010.
Frank Sangster, of KPMG, the accountant, says: “The Chancellor has effectively
decided to prioritise fiscal sustainability over environmental
sustainability. Drivers of gasguzzling 4x4s are thus getting off lightly.”
However, the Chancellor did decide to keep his plans for a “showroom tax”: a
higher rate of VED on new cars for the first year. This means that the most
polluting cars in Band M will pay £950 in the first year and £435 a year
thereafter. This will be introduced in April 2010 in the hope that it will
provide powerful incentives to buy less polluting cars.
Drivers may also suffer more delays as a result of the Pre-Budget Report, with
the number of roadworks set to increase. The Chancellor said that part of
the £3 billion of capital spending that would be brought forward from
2010-11 to this year and next would be used to increase capacity on
motorways.
Air passenger duty
Mr Darling also announced that air-passenger duty will increase to hit those
who travel farthest. Currently, there are two rates for the duty, covering
journeys in Europe and those outside Europe. Those in economy class pay £10
and £40 respectively, while business-class passengers pay £20 and £80.
But from next November there will be four bands - for journeys of up to 2,000,
4,000, 6,000 and more than 6,000 miles. Rates will then increase from
November 2010. As with the current system, those who fly economy will pay
less than those in business class.
A passenger in economy flying 2,000 miles or less will pay £11 next year and
£12 from 2010. Those flying between 2,001 and 4,000 miles will be charged
£45 next year and £60 from 2010. Those travelling between 4,001 and 6,000
miles will pay £50 next year and £75 from 2010, rising to £55 and £85 for
those travelling more than 6,000 miles. Travellers in business class will be
charged double the economy rate.
This means that a family of four travelling economy to America will pay £240
in air passenger duty from 2010 - £80 more than they currently pay. The same
family travelling to Australia or Singapore would pay £340, a £180 increase
on what they would pay today.
This announcement was another climbdown for Mr Darling, who had wanted to
replace air passenger duty with a new tax that reflects the carbon cost of
each flight.
A spokesman for BA, the airline, says: “The tax rates proposed will mean that
UK passengers by 2010 will be paying more or less double the current air
passenger duty on flights of more than 4,000 miles. There can be no
environmental justification for this, and extra taxation is a further blow
to the industry at a time when it is reeling from the combined effects of
rising costs and falling demand.”
Heat is on for energy suppliers
The Chancellor went some way to address the mounting criticism of energy
suppliers for failing to pass on reductions in wholesale gas costs. He also
announced more funding to help the most vulnerable households with
energy-efficiency measures for their home.
The Government had already pledged £874 million over the next three years for
its Warm Front scheme, which provides certain households with up to £2,700
for energy-efficiency measures, such as a new boiler, insulation or double
glazing. Mr Darling said that an additional £100 million would go towards
the scheme, while £50 million budgeted to be spent on the scheme in future
could be used now.
Ed Mayo, of Consumer Focus, the energy consumer champion, says: “We welcome
this extra funding, but it is piecemeal action. Even with the new money
included, current investment must increase fourfold to ensure
energy-efficient homes for all 5.5 million households in fuel poverty.”
Mr Darling also acknowledged concern that falls in wholesale energy costs are
not reflected quickly in household bills. Now Ofgem, the industry regulator,
must publish quarterly reports monitoring the link between wholesale and
domestic prices, with the first report due in February.
Ann Robinson, of uSwitch.com, the comparison website, says: “Energy suppliers
are quick to raise prices when wholesale costs increase - bills have risen
by 42 per cent this year for that reason - but are far slower to reduce
household bills when wholesale costs fall, as they have in the past two
months. Ofgem's reports should provide some much needed transparency to the
market and will hopefully bring energy suppliers under more pressure to pass
on reductions.”
However, other experts say that the volatility of the energy market needs to
be considered. Gareth Kloet, of Confused.com, another comparison website,
says: “Mr Darling said that the Government will step in if energy companies
do not pass on changes in wholesale pricing more quickly. This could mean
more volatile energy pricing. At present UK prices change about twice a
year, but this could increase to four times a year.”
Case study
As the owner of Abby Couriers, in Basildon, Essex, Mark Giles hires about 150
self-employed drivers - all of whom have struggled this year in the face of
the rising cost of fuel. Many of his drivers are not VAT registered because
they do not want the extra paperwork, meaning that they pay VAT as well as
fuel duty.
Mr Giles, left, says: “Some of our drivers do claim back their VAT, so they
will not benefit from the reduced rate. Given the increase in fuel duty, the
drivers that do pay VAT will not benefit either.
“The recession means that we are seeing a slowdown in business and have
already lost about 40 drivers, so an increase in petrol costs is the last
thing we need.”
Mr Giles drives about 1,500 miles a week in his Chrysler 300C automatic - one
of the most polluting cars - and now faces higher tax and petrol costs. He
currently pays £210 a year in vehicle excise duty, but this will increase to
£215 next year and to £235 from 2010.
“There was not much to help me, either personally or professionally, in this
Pre-Budget Report,” he says.
