Duty on fuel provides £23bn for the Treasury

The Chancellor, Gordon Brown, raises nearly £23bn a year from duty on petrol and other fuels. Duty on ultra- low sulphur petrol and diesel, found on most service station forecourts, is at a flat rate of 47.1p a litre, over half of the average 82.82p a litre for petrol.

The Chancellor, Gordon Brown, raises nearly £23bn a year from duty on petrol and other fuels. Duty on ultra- low sulphur petrol and diesel, found on most service station forecourts, is at a flat rate of 47.1p a litre, over half of the average 82.82p a litre for petrol.

That rate is due to rise by nearly 2p a litre from 1 September, although the Treasury said that most petrol stations would switch to sulphur-free fuel, for which the increase will be limited to 1.4p a litre.

On top of the fuel duties Mr Brown also charges VAT at 17.5 per cent on pump prices, taking tax to around 75 per cent of the cost of a litre of fuel, although there are no figures are on additional income produced by VAT on fuel. Charges on ordinary petrol and diesel make up the bulk of the £22.8bn income from fuel duty. There are substantial discounts for green and commercial fuels used in agriculture and construction.

Duty on red diesel, used in tractors and construction vehicles, is set at just 4.22p a litre, while the duty on biodiesel is just 27.1p a litre.

Any rise in pump prices is likely to increase the Treasury's VAT revenue. However, because fuel duty is imposed as a fixed charge per litre, it is not affected by prices at the pumps.