Tax windfall enough to cover fuel duty freeze, says IFS

Windfall gains made by the Government from taxes on North Sea oil would more than pay for a postponement of the 2p rise in fuel duty scheduled for this October.

Research exclusively conducted for The Independent by the Institute for Fiscal Studies reveals that the Government will make a gain of around £1bn in this tax year, compared with the estimates made in the Budget. That is because the Treasury bases its estimates on the average oil price forecast by independent observers, which stood at only $83.80 per barrel in March. The price of a barrel touched $135 recently, and the consensus of independent forecasts now stands at $103 for the year, with Government oil revenues rising commensurately.

In 2009-2010 the windfall gain could be even higher at £1.25bn, according to the IFS. The cost of postponing the 2p increase in fuel duty, by contrast, is about £550m. Indeed, the Chancellor, Alistair Darling, could also afford to postpone the controversial rise on vehicle excise duty for older cars, a move designed to raise an extra £465m in 2009-2010.

Carl Emmerson, the deputy director of the IFS, said: "The direct impact of higher oil prices on the profitability of North Sea oil companies would in isolation boost tax revenues by enough to delay October's planned 2p increase in fuel duty by up to a year."

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