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What would be a fair price for fuel?

By: Laura Nineham
28 January 2011

In the face of rising petrol costs, Channel 4 has investigated the cost of fuel to find out what a fair price tag would be.

As part of their 'Fact Check' series, the blog explored the prime minister's question: "Is there a way of sharing the pain of increased petrol prices between the motorist on the one hand and the Treasury on the other?"

The growing fuel prices are down to the rising cost of oil, and the increasing tax placed on it. As explained by Channel 4, duty on petrol rose by 3.5p a litre this month, consisting of an extra 0.76p in duty and 2.7p because of the VAT increase.

Those with driving jobs are keeping a close eye on the soaring costs, which is impacting the profit margins of the industry ranging from delivery companies to logistics franchises.

With the AA warning that duty will hit £6 a gallon, and duty will increase by 1p in April thanks to the 'Fuel Escalator', drivers are increasingly nervous about the mounting costs.

Channel 4 explains that introducing the highly publicised 'Fair Fuel Stabiliser' isn't popular with the Treasury because the numbers don't add up. If the price of oil grew by just £10, the Treasury wouldn't make any money. In fact, they'd lose around £3bn a year.

Another option is to scrap the 'Fuel Escalator' altogether, but that could compromise the government's green agenda.

There is no clear cut answer, concludes Channel 4. Cutting the 'Fuel Escalator' would be "politically tempting, but will be financially and environmentally tough," they say.

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