Petrol prices close to record as fuel duty rises

[dutchman]

The price of petrol and diesel has edged closer to a record high at the pumps following a one-penny rise in fuel duty which came in at midnight.

The motoring body the AA is predicting petrol could hit a record average of 120p a litre in the next few days.

The duty rise comes on top of a steady rise in the wholesale price of fuel, made worse by a weaker pound which makes imported fuel more expensive.

It is the first of a three-stage fuel duty increase announced in the Budget.

Fuel duty was meant to rise by 3p a litre on 1 April, but Chancellor Alistair Darling decided to phase in the rise instead. There will be further 1p rises in October and January.

The average price of unleaded petrol is currently 117.93p a litre. Diesel is on average 118.51p, according to figures from industry experts Catalist.

The penny rise will see petrol move closer to the record average high of 119.7p set in July 2008. Diesel peaked then at 133.25p.

As well as the rise in fuel duty, a subsidy on biofuel production has also been scrapped. As all conventional fuel has biofuel in it, this is expected to inflate the cost by an additional 0.7p a litre, industry experts say.

Election impact

"Where we go from here is difficult to say," the AA's Andrew Howard told the BBC.

"It depends on how the pound reacts to the general election result and the impact of any tax changes that follow the election."

A year ago, fuel at the pumps was about 30p a litre cheaper. But it has risen steadily since then.

"The things that have really put the cost of petrol up more recently has been the fact that our currency has been weaker against the dollar, and that's actually had a bigger impact than the duty itself," Brendan McLaughlin from price comparison site petrolprices.com said.

"In 2000, the fuel tax was 73.5%. And now, it's running at about 60%. So tax on fuel, as a percentage, is actually lower at the moment."

New cars

Consumers buying new cars will also be affected by changes to vehicle excise duty, which were announced in the 2009 Budget and came into effect at the start of the month.

The changes have been made to encourage the purchase of the lowest-emitting cars. So Vehicle Excise Duty (VED) has been scrapped in the first year for cars in the first four bands, A to D.

This equates to a saving of £90 for those buying band D cars, which include some Ford Fiesta and Toyota Auris models for example.

Those buying the most polluting cars will pay substantially more in the first 12 months. VED on a car in band M, such as some Landrover Discoveries and Jaguar XKs, will cost £950 in the first year, more than double the normal rate of £435.