November 16, 2011 / 9:23 AM / 6 years ago

Government faces backlash over high petrol costs

LONDON (Reuters) - The government should scrap plans to raise fuel taxes next year because it is “crippling” an economy that has barely grown in the last year and is hurting households already hit by high inflation and low wage growth, MPs said on Tuesday.

The government wants to raise fuel duty by three pence in January and by a further penny in August -- a move that will take the duty on a litre of unleaded petrol to 61 pence. Drivers must also pay 20 percent VAT when they fill up their car.

Average fuel prices are within three pence of a record high set in May, with a litre of unleaded fuel costing 134.5 pence, according to research by the AA motoring organisation.

That is a major headache for families struggling to cope with inflation running at 5 percent, more than double the Bank of England’s 2 percent target.

Abandoning the planned rises would cost the government an estimated 1.5 billion pounds each year in lost revenue at a time when it is trying to cut a budget deficit that peaked at 11 percent of GDP.

Parliament debated high fuel prices on Tuesday after 115,000 people signed an online petition on a government website. All petitions with more than 100,000 supporters trigger a parliamentary debate on the subject.

Conservative MP Robert Halfon, who created the online petition on fuel, won support from more than 100 MPs, including around 80 from his own party.

“Adjusted for inflation, motoring fuel has never been this expensive except for twice in history during historic crises of supply -- Suez in 1956 and the OPEC strike in 1973,” he told parliament.

”This is being driven by high taxes and we have to be realistic and truthful about who pays the lion’s share of fuel duty.

“It is ordinary families driving to work, it is mums taking their children to school, it is small businesses who can’t afford to drive a van or their lorry.”

The government, trying to cut spending and boost revenues, said it understood that motorists are feeling the pinch, but it would not reverse the rise.

“We’re going to have to take difficult decisions to get the deficit down, but within that we have shown sensitivity to the needs of motorists,” Treasury minister David Gauke told the BBC.

In a response to the e-petition, the government said it had already abolished an inflation-linked mechanism that would have raised fuel duty even higher.

“Our actions resulted in average pump prices being about 6 pence per litre lower than if we had continued with the previous government’s fuel duty plans,” it said.

The British Retail Consortium, a lobby group, urged the government to drop the planned fuel duty rises to try to stimulate consumer spending and revive the stagnant economy.

Editing by Keith Weir

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