Chancellor Darling remains hellbent on increasing the cost of fuel duty, ignoring the effect it will have on UK plc's recovery.

Politicking with prosperity
Chancellor Darling remains hellbent on increasing the cost of fuel. Duty goes up first in September and then again in real terms every April for the next four years.

It's a disgrace.

The brouhaha about dishonourable members fiddling their expenses and tax returns is nothing compared to the damage Darling proposes to inflict on UK businesses, affecting every enterprise that depends on cars. Few rely on the horse and trap so that means just about everyone.

Announced in the budget but elbowed out of the newspapers by MPs' misdemeanours, the fuel duty alone will rise by 1p per litre above inflation every April for the next four years. It will add £1.25bn to Treasury coffers in 2010/11 and £1.75bn in 2011/12.

British Airways' spectacular £401m pre-tax loss reported last week, down from a £1bn profit last year, was not entirely due to fuel prices. But, tellingly, fuel prices have stabilised during 2009 and BA now expects to reduce fuel costs by approximately £400m.

It's no coincidence that during the year to March 2009, the price of oil veered wildly between $147 a barrel to as little as $38.

Gambling on futures
Virgin Atlantic also reported its results this week, surprising everyone with annual pre-tax profits almost doubling to £68.4m. The CEO of Virgin Atlantic Steve Ridgeway said that highly successful hedging on fuel made a massive difference to the numbers.

Clearly BA didn't hedge as much or as well.

The success of businesses - be it a flagship airline with almost £9bn revenues but bleeding £3m a day in cash, or a one-man-in-a-van and every business model in between, depends on stable fuel prices. The success of UK plc should not be predicated on taking a punt on fuel at the right time.

The Freight Transport Association (FTA) warned the extra burden from fuel charges could be the death knell for some hauliers. The FTA's members operate 220,000 goods vehicles or almost half the UK fleet. When we factor in changes to the capital allowance regime, effective from last month, we wonder if business can afford cars.

Avoiding disaster
Finance Week and its sister publications (www.siftmedia.co.uk [1]) will return to this theme over the coming months. These issues are about getting out of the recession faster and reducing unemployment.

It is incumbent on businesses, professional bodies and, dare we say it, our elected representatives in Parliament to revisit fuel duty and capital allowances before the government delivers this unnecessary blow.

Some businesses, inevitably, will decide they can't afford to maintain fleets for frontline sales to get on the road, ply their wares and maintain customer relationships.  That's what builds economic recovery.

Janice McGinn
Editor
Finance Week
janice.mcginn@siftmedia.co.uk [2]