Chancellor skips over fuel duty concerns in 2012 budget

With the Government’s Office of Budget Responsibility reporting that it has upped its UK growth forecast to 0.8 per cent this year, and with the statisticians no longer talking about the country being in technical recession, some may have expected the Chancellor of the Exchequer, George Osborne MP, to have addressed the continuing rise in fuel prices by freezing fuel duty increases. It didn’t happen. Much to the chagrin of fleet-based business this was despite recognizing that high oil prices are “a great concern across the world". Other highlights include plans to simplify small business taxation, reduce corporation tax and dispense with the 50 pence tax rate.

For the majority of the speech comment relating to fuel duty was noticeable by its absence. And when George Osborne did come round to discussing this part of his 2012 budget, it was over as soon as it began. In short he confirmed the government will continue with its existing plans. Basically, far from freezing or reducing it, fuel duty will be increased by 3 pence per litre from August. As blogger, Progress Blues, commented in the immediate aftermath of the comments (which came seconds after the announcement): “Osborne’s just committed to making diesel £7.66 a gallon in August. Effectively house arrest for many.”

Busy motorists that are already burdened with general inflation and the other effects of the sluggish economy, not to mention fleets that are dependent on both fuel and vehicles will no doubt be disappointed there was no cut. The first business reactions came from those in the motor and haulage industries. “No change in fuel duty plans – but that wont stop us fighting for a solution,” the Road Haulage Association posted on the Twitter social networking site. “No changes in fuel duty plans. How many hauliers will it put out of business?” Commercial Motor’s Christoper Walton asked via his Twitter account. 

From a tyre industry perspective, it is difficult to discern what the repercussions will be. With AA president Edmund King commenting that if petrol prices reach 145 pence per litre…18 per cent of people will cut back on groceries, it is difficult to see how this won’t have a negative impact on miles driven. And a drop in miles driven inevitably means delays in tyre replacement and therefore also a fall in tyre demand. What this also reveals is that consumers are likely to be under increased price pressure when it comes to the next tyre purchase. But as any good salesman will tell you, when a customer brings in the price argument the only option is offer a quality-centred repost. The flip side of high fuel prices is that fuel-saving tyres will actually save consumers a greater equivalent of the cost of they tyres. And this will go on as long as fuel prices continue to increase.

There was however some good news for fleets. Vehicle excise duty will be frozen for road hauliers. And the 3 per cent diesel supplement on company cars will be removed by 2016.

Tax reductions and simplifications for businesses

While the headline grabbing news is likely to be the removal of the highest rate of personal income tax, the chancellor also announced plans for tax relief for businesses. Corporation tax will be set at 24 per cent then 22 per cent in 2014. This is said to be 18 per cent lower than US and form part of a longer term goal of hitting 20 per cent.

George Osborne said he wants to introduce a globally competitive tax system for businesses. This includes plans for small firms to be taxed on the amount of cash passing through their businesses rather than more complicated methods. This means the simplification of tax system for small businesses turning over up to £70,000 a year. Likewise VAT loopholes being closed or in other words putting VAT on things that currently don’t have any. 

Based on pre-budget calculations, the Office of Budget Responsibility says UK growth is forecast at 0.8 per cent this year, 2.0 per cent in 2013, 2.7 per cent in 2014, before 3 per cent in 2015 and 2016. And therefore the country is out of the woods as far as the technical definition of recession is concerned, according to these figures. And with a view to highlighting government initiatives that he would like to portray as being behind the positive figures, the chancellor stressed the importance of policies that support growth. The UK automotive industry for example saw £4 billions of investment commitments in 2011. With the aim of adding fluidity to the market the government announced £20 billion of loan guarantees for to SMEs with this scheme kicking off officially yesterday (20 March 2012).