Even as the government comes under pressure to abandon the planned August rise in fuel duty, the European Commission is looking at how it might raise it on diesel (at least relative to petrol).
According to reports in the European Voice, EU member states are expected to reject a Commission proposal to tax all fuels based on their energy and CO2 content. When it comes to road fuels this would mean that diesel – which has a higher energy content than petrol, and hence higher CO2 emissions per litre burnt than petrol – could no longer be taxed at the preferential rate currently seen in all member states except the UK where the same duty rate is applied to both petrol and diesel (and even in the UK, despite the existing parity, there would be a rise in the diesel rate of duty).
Many member states are rejecting this plan as it relates to road transport, while Germany, Poland and the UK appear to be opposing the entire idea. They fear the move would hurt their economies, particularly the diesel market and the commercial sector which relies heavily on high-mileage diesel vehicles. In the UK, for example, more than 50% of new cars sold are now fuelled by diesel.
As a recent Institute for Fiscal Studies report for the RAC Foundation – Fuel for Thought: The what, why and how of motoring taxation – showed, however, levying a higher tax on diesel would make sense from an economic theory perspective, as it would ‘internalise’ the greater costs to society of burning diesel as compared to the same amount of petrol.
So which should take precedence? Economic theory or the real-world needs of ‘the economy’? Compromise options include an EU-wide minimum tax rate (but no maximum) or to exempt commercial vehicles.
If nothing else this issue shows that fuel taxation is a major concern across the entire continent, not just on these islands.