UK fuel prices rise sharply

Forecourt prices for petrol and diesel in the UK are continuing to rise sharply in the wake of Hurricane Katrina, which swept through the oil producing region of the Gulf of Mexico.

The average UK petrol price has reached around 95 pence per litre for petrol (£4.27 per gallon) and in some cases motorists have reported being charged over £1.00 per litre (£4.50 per gallon) by some retailers.

Diesel is expected to show similar price rises and is forecast to exceed £1 a litre within weeks as there is an ongoing shortage.

Prices started to rise on the back of the after effects of Hurricane Katrina in the Gulf of Mexico where oil production was severely disrupted as rigs shut down and refineries were forced to suspend operations due to the hurricane. Production in the region is down by over 80%.

Motoring lobby groups have called for the introduction of a variable taxation rate on fuel to soften the blow of record oil prices on consumers and business.

The RAC Foundation believes that urgent action is needed as the sharp rise in fuel prices has pushed the level of inflation to its highest level in more than eight years.

Fuel excise duty is currently charged at a fixed rate of 47.1 pence per litre on unleaded and diesel, plus VAT is levied at 17.5%. The duty and tax element made up around three-quarters of the pump price.

Edmund King, executive director of the RAC Foundation said: "In light of the record world oil prices and instability in the markets the Chancellor should help to stabilise fuel prices by introducing a variable tax.

"Current hikes are fuelling inflation and hitting those low-income and rural car dependent motorists hardest.

"The Chancellor could and should introduce a mechanism whereby fuel duty is reduced if world prices hit a certain level and increased if they fall below another level. The Treasury would still benefit from increased VAT returns if prices go up."

(SP/KMcA)