Monday 29 October 2012

George Osborne's 3p rise in duty 'will squeeze households for years'

George Osborne's planned 3p increase in petrol duty will strain household finances for another three years and cause more pain than it raises in tax, campaigners warned today.

Petrol price campaigners will present the Treasury with an analysis by economists on Monday showing a 3p rise in duty would cost the economy at least £1 billion - substantially more than the £800 million in tax it would bring in.

Robert Halfon, the MP for Harlow and petrol campaigner, believes the rise due for January next year will cost families £60 a year in petrol costs alone.

But it will also inflict wider, damaging effects on the whole economy, according to the new report from the National Institute of Economic and Social Research (NIESR).

The NIESR economists found there would be a drop in household spending, leading to lower national income and around 35,000 job losses.

The cost to the economy could reach as much as £2 billion and cause 50,000 job losses, if the additional pressure on inflation causes the Bank of England to raise interest rates.

“The negative impact on growth is expected to persist into 2015, with a full recovery not anticipated for six years,” the report said.

"Any increase in fuel duty raises prices, and therefore causes a fall in households’ real spending power and reduces consumer spending. Lower consumer spending means that firms sell less, leading to bankruptcy and job losses, and putting further pressure on household income."

Quentin Willson, the motoring expert and spokesman for FairFuelUK, said fuel duty should be a “lever for growth” rather than the Treasury's “sacred cash cow”.

“We've proved our argument with robust financial research and modelling that shows if you raise duty you destroy jobs and damage growth,” he said.

Mr Halfon, who successfully campaigned for fuel duty rises to be deferred in the past, said the latest plan to increase tax for motorists does not make sense.

“Our economy has turned the corner, and it is now growing again," he said. "The last thing that we need is to crush that recovery with a £60-a-head tax on petrol and diesel.

Sources said the meeting at the Treasury between officials and fuel campaigners is “routine”.

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