CASH-strapped businesses are generating less tax for the Treasury.

This is despite the government piling on the fuel duty burden, says AA research into the government’s latest fuel retail sales figures.

The government last raised fuel duty at the Budget by 1.84p per litre. Another increase of 2p per litre is scheduled for September.

But according to the AA it’s the law of diminishing returns. In the first quarter of 2009, falling retail sales of fuel and diesel produced £97.3 million – or 2% less in fuel duty income than the same period 2008.

Despite the fall in fuel prices in the early part of January – and gradual recovery to 90p a litre through to March – retail sales figures from the Department of Energy and Climate Change show that UK petrol stations sold 212,000 fewer tonnes of petrol and 220,000 fewer tonnes of diesel.

The shortfall reduced fuel duty revenue from £4,829,514,980 in the first three months of 2008 to £4,732,217,440 in the first three months of this year.

Much of this fall in forecourt sales can be accounted for by the UK moving into recession, leading to lower business activity and drivers cutting back because of pay freezes, redundancy or reduced income from savings.

“What is the point of increasing fuel duty if it helps push the price of fuel to a level that more and more drivers can’t afford?” questioned Edmund King, the AA’s president.

“The government gets less tax. And a large section of the electorate gets riled.

“Escalating fuel prices, particularly once the global economy gets back on its feet and energy demand returns, is likely to undermine the tax potential from fuel duty as drivers cut back. The government can claim that this is good for the environment, but higher prices and depression are already doing the job without having to increase the tax burden.”

Fuel duty increases

• Increased 1.84p in April 2009
• Another 2p rise scheduled for September 2009
• VAT will rise to 17.5% from January 01 2010, increasing the overall effect of 2009 fuel duty hikes
• April 2010: 1p per litre fuel duty rise scheduled

Further information

There’s additional commentary on the fuel duty tax hikes in the Editor’s Blog Fuel duty rises backfire on the government

Less tax take from fuel despite rises