Fuel Stabiliser

The Fair Fuel Stabiliser

In the March 2011 budget the coalition government said that it is reducing the fuel duty by 1p per litre, instead of the previous plan which was to increase it by an estimated 4-5p (inflation +1p). However with UK petrol prices at over 132p a litre (for unleaded) there is growing concern that petrol is quickly becoming unaffordable for the average motorist and the UK economy.

With all things political there is a catch to this fuel duty reduction. In order to fund this fuel duty reduction the government has increased the levy on profits made by companies on North Sea oil (and gas). In 2006 a tax system was created where an additional 20% tax was placed of all profit from North Sea oil and gas, this is over and above other taxes to be paid. Now this tax has been increased to 32%. With corporation tax included the oil companies now pay 62% tax on their profits. It is estimated that this will raise a further 2billion pounds a year, which is enough to offset the new changes to the fuel duty taxes to British motorists.

Confused yet?

Furthermore, if the price of oil falls below $75 a barrel (or thereabouts, apparently the exact figure isn't fixed yet), then the tax rate will fall back to the 20% level.

And then on top of that, when the tax rate falls back below the 20% level the chancellor has hinted that fuel duty will go back up again in order to recoup the lost tax revenue.

So there you have it, essentially the ‘fair fuel stabiliser' is a mechanism which slightly limits fuel prices by getting the oil companies to pay the tax instead. If oil prices continue to go up then perhaps the additional oil company tax will increase and fuel duty will decrease further. If oil prices go below $75 then we'll see the opposite happening with oil company taxes decreasing and the fuel duty increasing.

Will the Fair Fuel Stabiliser really be fair?

It has been suggested that the oil companies will just put up the price of petrol at the stations to compensate for the increased taxation rate, however would be extremely difficult as North sea oil only provides a fraction of our petrol needs, the rest comes from all around the world. With such a competitive market to choose from it would be pretty difficult for the players in north sea oil to somehow raise the price of a litre of fuel at the pump.



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