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Fuel Alarm Bells Ringing

The combination of a planned fuel duty increase in August and inflated crude oil prices – resulting from tension in the Middle East – has set the alarm bells ringing…Again.

Headlines warn that fuel prices could hit £1.65 a litre within weeks, with the potential of a three pence duty increase to follow in August.

The price of crude oil has been pushed up thanks to our beloved financial types, gambling on the price of a barrel increasing further. The problems in the Gulf with Iran could mean that our ‘friendly’ supplies could be curtailed because of Iran’s influence over the Strait of Hormuz. 20% of the world’s oil passes through the 53km wide seaway. The speculators and hedge funds are buying up crude like there is no tomorrow; in the hope they can profit once the price increases further. That causes shortages, which inflates the price. Have you seen all the oil tankers parked off the coast of South West England and Wales? All full of oil waiting for the price to go up. What this means to you and me is for every £1.26 increase in the price of a barrel of crude, we pay an additional one pence per litre at the pumps. A far more volatile influence than planned duty increases.

Almost 60% of the pump price in the UK goes to the Chancellor and your association, along with FairFuelUK has been doing a great job lobbying to ensure he doesn’t get any more.

But the problems facing diesel and kerosene consumers are far more wide- ranging than gambling city types and a government in love with easy revenue from fuel duty.

But there is another and possibly more significant threat. You all know that there is a noticeable price difference between petrol and diesel. In the main it is to do with refining capacity. Even if we can get our hands on the crude oil, Europe and the UK’s ability to turn it into diesel cannot match demand. And the major oil companies simply aren’t interested in changing that. Why? Because while it costs us more to buy imported diesel, it costs them less if it is produced and refined outside Europe, enabling them to make bigger margins.

40 years ago the UK and Europe was fuelled largely by petrol. Our North Sea crude is perfect for producing it and so our refineries were built to service an overwhelming demand for it. Since then diesel has become the fuel of choice for 50% of car and 100% of commercial vehicle users and we simply don’t have the capacity to refine the quantities required. A new crude oil cracking tower costs around £500 million and as there are limited margins in refining, the oil companies and refinery owners either aren’t prepared to, or can’t afford to invest.

Add to this the fact that oil refineries are closing – Europe lost several in January as a result of the collapse of Petroplus – and matters just get worse.

Whether the government can do anything about it is a moot point. Yes it could soften the impact of inevitable fuel price increases over the next few years by reviewing the amount it taxes the sale of fuel; after all there has to be a limit how much it can and should take. But many would argue that the damaging increases – in diesel prices especially – would not be a result of a government’s actions, but from global influences and an acute lack of domestic refining capacity.

Thanks to the slow down in the U.S and European economies the demand for diesel has fallen. The BRIC nations are using up the global surplus to fuel their rapidly expanding economies. But once the demand for diesel returns in the West to pre-recession levels – which it eventually will – this combined with increased demand elsewhere in the world will result in shortages, compounding our problems even further.

Maybe the government can come up with a way to combat this threat. I hope so because by the end of the decade running a diesel powered vehicle in Europe could quite feasibly become the preserve of the rich. And everything we buy will be much more expensive or even unavailable because of the cost of delivering it.

Our plea to the Chancellor

The RHA will be taking part in the presentation of a petition to 10 Downing Street on 2 March and I hope that you have signed up to the FairFuel UK campaign, which is also supported by the FTA and a number of other organisations.

In addition to the petition, we have been working with these organisations to increase pressure on the Chancellor to cancel the planned 1 April duty increase announced last year, which is subject to confirmation in the March Budget Statement.

This increase is not 1p – as has been regularly and mistakenly reported in the press – but is planned to be Retail Price Index (RPI) linked, plus 1p. We all know that this measure of inflation has been rising steadily and reached 5.1% on 15 February. Duty is currently 58.95 pence per litre, so a 5.1% inflationary increase will be 3p – plus the 1p extra, making a total of 4 pence per litre! Needless to say, if inflation carries on rising, as many forecasters expect, the hike in fuel duty will be even more.

RHA action has included a massive amount of media coverage, with large numbers of RHA members and staff being interviewed by the press, ranging from national TV stations to local newspapers. To every single one of you who has got involved in this work, please accept my gratitude. Your help is a great example of cooperation.

Now is also the time for members to contact their MPs, telling them how important it is that fuel duty does not rise by any more. I am often told that members have been in touch with MPs who know little about our industry: that is all the more reason for you to write, setting out how many voters are involved in your firm and how important your business is to the economy in their constituency.

The Chancellor will make his Budget statement on 23 March and we hope it will be good news. We know that the government is in a very difficult position and it has to mend the nation’s finances. We are equally sure that massive increases to the price of fuel when the economy is so fragile puts at risk the economic recovery that the UK so badly needs and threatens growth in the private sector which will pay the taxes required to balance the books.

It is not too late to help prevent yet more increases in fuel duty – especially critical at a time when diesel is already at record prices because of high crude oil prices caused by pressures in the global markets and by the sterling/dollar exchange rate.

The RHA wrote to the Chancellor before Christmas asking him to reconsider the increase. A great deal has happened since to persuade him to change his mind. I hope he does.

March 2011

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