EU to dampen diesel duty

The Government is facing a major assault by the European Union over its decision to keep UK diesel duties as the highest in Europe.

Having failed to shift Gordon Brown last year, the EU Commission is making new and concerted efforts to push for harmonisation of diesel duties across member states – a move that would dramatically reduce taxes on the fuel from their current level of 80 per cent. The proposed directive is going to be debated in Brussels again in two weeks' time, and UK interest groups are preparing to fight the issue.

A House of Lords sub-committee on economic and financial affairs has asked a range of organisations, including the Petrol Retailers' Association, the AA and the Freight Transport Association, to submit their views on the matter by this Friday.

But other groups, notably the hauliers who organised the UK fuel blockades in late 2000, may resort to more active methods of protest.

The Treasury's objection to the directive is based on the effect it would have on the Budget. If true harmonisation took place across EU member states, the lower diesel taxes in the UK would leave the Chancellor with an estimated £2bn hole.

Richard McClean, the clerk of the Lords' sub-committee, said: "When the harmonisation came up last July, under Denmark's presidency of the EU, the UK was able to block it. The issue is coming up again under the presidency of Greece, and the pressures could be very different."

The EU's interest in diesel tax harmonisation centres on its commitment to free trade within the union, and is aimed at making the business of transporting goods by road across Europe more transparent. The proposal is also aimed at reducing the growing problem of diesel smuggling that takes place across EU borders where the two countries have big differences in the tax burden.