Fuel tax may be tagged to oil price

Hard-hit motorists have been offered a glimmer of hope after the Government revived the possibility of stabilising fuel prices.

Prime Minister David Cameron said the Treasury was looking at the possibility of pegging fuel tax to oil prices after a recent increase in the cost of the commodity and the 2.5% VAT rise, which he added was very "painful and difficult" for motorists.

Pegging the tax on oil prices would see the proportion of duty paid by drivers fall when oil prices increase and drop when fuel prices decreased, which is good news for those who want to avoid being forced to use theirbreakdown cover after scrimping on filling up.

The proposition was mentioned in the Conservative manifesto but never made it into coalition agreement with the Liberal Democrats. However, fuel prices have now topped £1.30 a litre for unleaded and £1.35 a litre for diesel after VAT hit 20% on January 4.

Speaking at Caterpillar's Leicester factory, Prime Minister David Cameron said: "I think we also need to ask ourselves this question, and I am working with the Treasury on this.

"Is there a way in which when the oil price goes up, if the Treasury is getting more revenue out of that oil, can we find a way of sharing that risk with the consumer? I.e if the price goes up, the tax comes down, and if the price goes down, the tax goes up."

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