Treasury coffers have been bolstered by the weakened pound driving up prices at the pump according to a report released today.
Fuel prices have risen by an average of 3.5p a litre over the last month. This means that the government is raking approximately £25m each month in increased VAT revenues, the AA Fuel Price report revealed.
The AA explained how the recent sterling slump had played a large role in the price hikes. As trade buyers effectively purchase fuel in dollars, their purchasing power has been reduced. Even if headline fuel prices remain the same it is costing them more in sterling terms.
“The motoring public has been assured that we will see economic prosperity. If that’s so and the chancellor is getting ‘a nice little earner’ from VAT on fuel, the government can lay off further motoring tax increases until the pound regains its value," said AA president Edmund King.
The motoring association calculated the benefit to the taxman based on HM Revenue and Customs own figures – that the average monthly consumption in the UK is 1.42bn litres of petrol and 2.48bn litres of diesel.
Most diesel is for commercial and business use, which allows businesses to the claim back VAT. So the AA said that even if only a quarter of diesel consumption was for private use, the additional VAT generated would give the Treasury a multi-million pound monthly boost in VAT receipts.