Posted on Monday 14 February 2011 by Ulster Business

asda petrol wall pain at the pump

A forecourt sign from early 2010 shows just how far fuel prices have risen

Petrol prices are at record highs and the price of diesel is forecast to hit £1.40 by Easter. Catherine Lynagh reports on the effect that rising fuel prices are having on businesses that depend on transport and asks whether a more flexible way of imposing fuel duty would go some way to easing the pressure on them

Fuel costs are at an all time high and consumers in Northern Ireland are paying more to fill up than any other region of the UK. On average, motorists in Northern Ireland are paying up to seven pence per litre more for fuel than in December. Diesel has increased upwards of eight pence per litre in the same period. At the current rate fuel is expected to peak at £1.40 per litre by April. With a further one pence increase on fuel duty due to come into force in April there will be more costs for local businesses heavily reliant on transportation – such as the haulage and logistics sector – which are already struggling to survive. While Chancellor George Osborne has hinted that the March 23 Budget may include a "fair fuel stabiliser" to soften the impact of petrol price rises by cutting duties as the cost of oil goes up, he has stopped short of committing to cancel the next planned hike, which will actually add 3p to the cost of a litre of petrol because of the recent rise in VAT to 20%. Phil Flanders, Northern Ireland director for the Road Haulage Association, described the situation as a "serious, serious problem" and warned local hauliers are in crisis. "The cost of fuel brings to light the reason why the majority of Northern Ireland hauliers fill up across the border in the Republic of Ireland. They simply have no choice when they could be saving as much as 12p a litre.The rise in April will be a further mockery," said Mr Flanders. He added: "In my opinion the fuel rebate scheme proposed for rural Scotland should be considered for Northern Ireland as a way of stimulating the economy. "The industry is cut throat and local business have an added disadvantage when competing in the market, because they have to get the ferry to the mainland. Most Northern Ireland hauliers have cut back their fleets by 20-30%. A lot of small companies would shut up shop if they could." A recent Federation of Small Businesses (FSB) poll of more than 400 small firms revealed that nine in 10 said the hike in fuel duty at the beginning of the year will cost them up to £2,000 over the next six months. Of those polled, 62% said they will have to increase prices if fuel continues to rise and one quarter said they will have to freeze wages. Liam Northfield from the Freight Transport Association, which is leading a fair fuel campaign to lobby the government into scrapping the fuel duty rise in April, said profit margins in the industry are dwindling. He said: "When you are running 200 lorries and a few vans it becomes untenable and unsustainable to carry on and has an impact on cash flow. It means these businesses can't invest that money as readily as they would like to, into, for example, driver training and greener environmentally friendly engines." He continued: "There is a lot of talk at the moment about stabilising fuel prices to cope with volatile oil markets. But one of the quickest ways that George Osborne can stabilise prices is to scrap the fuel duty throughout the rest of 2011. We are talking about people going out of business." Brian Donaldson, General Manager for Marketing and Retail at the Maxol Group said the company would welcome any policy which would keep pump prices stable, and has actively lobbied the Government in the past for this type of intervention. "At 58.95 pence per litre on diesel and petrol the UK has one of the highest rates of taxation payable on fuel in the European Union, where the average is around 33pence per litre," he said. "In recent months we have witnessed the world price of crude continuing to rise on the back of improving economic optimism in the US, the biggest oil consumer in the world. Concerns over capacity, driven by increases in demand by the Far East, have also served to boost prices. These factors along with the strengthening of the dollar against pound sterling have led to high prices." Mr Donaldson explained that prices at the pump are dictated by a number of different factors: the world price of crude oil, which is determined in the international marketplace taking into consideration supply and demand as well as costs of transportation; the taxation that is imposed by the local government; and, because oil is traded exclusively in dollars, the strength or weakness of that currency against sterling. All these factors determine the eventual price at the pump. He added: "Fuel has long been used as a soft option by the Exchequer to raise revenue. Despite the UK having the highest rates of fuel duty in Europe there have been a number of tax increases applied by the British Government to petrol and diesel over the past decade. Applying stealth taxes in this way does nothing to stabilise the price of a product which is already price sensitive and exists within such a volatile market. According to the 2010 Budget, fuel duties will bring to the public purse at least £27.5bn but considering spiking oil prices, this figure is likely to be revised upwards." One positive note is that, while public transport costs have risen in recent years, those who travel to work on trains or buses should not be directly impacted by rising fuel prices. A spokesperson from Translink explained: "Like most transport operators, we have hedged fuel purchases for many years in order to reduce financial risk and manage our costs. Any future changes in fares depend on several factors and costs. Fuel is just one of those costs."

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