UK Fuel Tax Debate Rages

by Jason Gorringe, Tax-News.com, London

04 August 2009

A report released by the Organization of Petroleum Exporting Countries highlights that, within the G7, the UK enforces the highest tax burden on consumers of oil products, siphoning off 56.7% of their sale price – and pushing prices to double those in the USA.

OPEC’s report reveals that taxation on a litre of oil in the United Kingdom has reached five times higher than that levied in the US at 11.5%.

Richard Branson of Virgin Atlantic has warned that the government’s ever more draconian environmental tax policy – set to worsen with the forthcoming doubling of Air Passenger Duty (APD) - is "out of control". He underlined that the "unjust tax" would hurt consumers, developing regions such as the Caribbean and Africa, and the aviation industry.

Branson's statement noted:

"Air Passenger Duty is one of the most unjust taxes out there. The UK government has been quietly increasing APD by huge amounts and claiming it is an environmental tax. Yet, there's not a shred of evidence to suggest the GBP2bn+ currently raised is going towards environmental or sustainable projects.”

"Now the UK Government wants to again hike the ridiculously high tax on holidays and business trips – in November this year and next – by up to 113%." Branson instead put weight behind proposals for a global carbon emissions trading scheme.

Many other stakeholders in the aviation industry – EasyJet in particular – have called upon the government to stop using environmental taxation as a "false-front" to justify excessive increases in the burden of taxation.

A report on UK environmental policy, commissioned by British Prime Minister Gordon Brown, authored by Mark Lazarowicz, a Labour Party MP and the Prime Minister’s Special Representative on Carbon Trading, concluded on July 20, advocates that a global carbon trading system, rather than a carbon tax, represents the best policy. However, the report does not rule out the introduction of new "targeted" taxes as part of a comprehensive carbon reduction plan.

“The evidence shows that global carbon trading can deliver substantial cuts in greenhouse gases rapidly and cost-effectively,” said Lazarowicz.

“Cap and trade should be combined with targeted regulation, taxation and public finance for comprehensive action. This report proposes action in developed countries at two levels – ambitious national targets and a network of linked cap and trade systems for emitters,” he explained.

The report was applauded by Brown, who said that the development of a global carbon market is “vital” if climate change is to be averted.

“I very much welcome Mark Lazarowicz’s report which shows that with the right reforms and participation, global carbon trading – alongside strong domestic effort – can help the world meet the tough emissions reduction targets as demanded by the science,” he commented.

He concluded in underscoring that the UK government remains "committed" to meeting its required 34% cut in emissions by 2020 through domestic action alone.

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