'Double whammy' increase in fuel duty and VAT set to hit motorists hard

Motorists will see the cost of running their cars rise steeply this week as a double increase in the price of petrol is set to add hundreds of pounds to annual fuel bills.

A planned rise in fuel duty will see another 0.76p placed on to both petrol and diesel from today, while the 2.5 per cent rise in VAT from Tuesday will push prices at the pumps to near record levels.

The AA predicted yesterday that the two measures would see around 3.5p added to the cost of a litre in less than a week. A further fuel duty rise is scheduled in April.

The average price of petrol went up more than 16p a litre over the course of this year, despite the recession. According to Experian Catalist, the current average pump price stands at 124.16p a litre. Car users are spending almost £10m more on fuel than they were 12 months ago, the AA said.

However, those Government-imposed rises could soon be compounded by a spike in the price of oil. Global crude prices, which are already topping $90 a barrel once again, are expected to increase steadily amid hopes that global economic demand is recovering from the recession.

The rise in fuel costs on the roads comes as rail users are also seeing an increase in the cost of season tickets, some of which will see a jump of more than 10 per cent from Sunday.

"Given that each penny increase in fuel duty raises about an extra £500m for the Exchequer, it is easy to see why the Chancellor is tempted to hike rates," said Professor Stephen Glaister, director of the RAC Foundation. "But if the nation's 34 million motorists are pushed too far they will drive less and the Treasury could see their tax take fall." Road hauliers also attacked the double-whammy increase. The Freight Transport Association (FTA) said lorry drivers would be paying another £1,200 in annual fuel bills because of today's duty increase alone.

"Diesel is not an optional extra for industry," said Simon Chapman, the FTA's chief economist. "It is essential to keep shops stocked and businesses supplied with materials.

"Rises in fuel commodity prices have already left operators facing diesel prices 9p per litre higher than a year ago, adding £3,800 per year to the bill of running an articulated truck."

Philip Hammond, the Transport Secretary, has stated he hopes to make 2011 the year of the electric car. His flagship scheme to hand out grants of up to £5,000 to those buying one of the vehicles officially begins today. He has earmarked £43m for the fund. Nine different models are eligible for the subsidy, but buyers will still have to find more than £20,000.

Some in the industry have questioned the timing of the scheme, arguing the infrastructure necessary to make the cars viable, such as a network of charge points, is not yet in place.

"Before the Government takes steps to incentivise the purchase of electric cars, it first needs to address the issues which stand in the way of their future success," said Steve Bratt, group chief executive of the Electrical Contractors' Association. "If we're not careful, we could see a re-run of battery cars, which became an object of media and popular ridicule during the 1980s."