Shetland could be in line for a fuel rebate following this week’s emergency budget by the coalition government at Westminster, although a 2.5 per cent increase in VAT threatens to cancel out any benefit afforded to motorists at the pumps.
The deal was offered by new Chancellor of the Exchequer George Osborne as a glimmer of hope to drivers forced to contend with high petrol prices, in what was otherwise described as the toughest budget package of spending cuts and tax increases in a generation.
Mr Osborne said there would be no increase in fuel duty, although that overlooks previously-announced rises of 1p a litre in October, and 0.76p a litre in January next year.
Petrol prices in the isles currently remain resolutely high, still standing at the £1.30 a litre mark for either petrol or diesel.
Isles MP and Lib Dem Alistair Carmichael – who campaigned for lower fuel duties while in opposition – was quick to trumpet the coalition’s willingness to look at prices, and said he would gladly assist treasury officials to help prepare a case for lowered costs.
Mr Carmichael said the move over fuel prices would lead to greater parity between petrol prices in the Northern Isles and those in mainland UK. However, the VAT hike – from 17.5 to 20 per cent from 4th January – could alarm some who supported the Lib Dems in the election because of their stance against an increase in value added tax.
“While the last government refused even to recognise that this was an issue, the new government understands the problems caused by high fuel costs and are looking at how these can be best addressed,” Mr Carmichael said.
“The whole point about the fuel rebate is it accounts for the differences between petrol prices in the isles and on the mainland. The VAT increase goes across the whole country. The fuel duty rebate will help to reduce the difference between Shetland and Orkney and the mainland.”
He said Tory plans for a fuel price regulator which would vary the duty on petrol depending on how high or low the price of oil was would be implemented in the near future. “There is a general issue about the price of petrol which is nationwide, which the government is taking on.”
Mr Carmichael said the VAT hike was clearly needed following the economic crisis in the Euro-zone, which recently saw riotous scenes take place in Greece. That, he said, made the possibility of the UK’s credit rating being downgraded, which would have led to a higher rate of interest on the country’s borrowings on the international markets.
The net result of that, he warned, could have been higher interest rates and increases in inflation.
“The economic circumstances have changed significantly. We’ve had the near-collapse of the Eurozone countries and that has genuinely made an enormous difference. It has made so much more acute the situation that is facing us.
“I genuinely wish we didn’t have to raise VAT, but the brutal fact is this is what is necessary to get the economy back into shape.”
Mr Carmichael blamed the previous Labour administration for the draconian measures which were having to be introduced now, admitting the budget had been “a very difficult one” overall.
“We have known for months that the country’s finances were in a dreadful mess. It was only after we had gone into government that we had learned just how bad things were.”
Meanwhile the chairwoman of Shetland’s transport partnership ZetTrans, Iris Hawkins, has welcomed the measures introduced by the government.
“I think it’s a great thing to hear – that at last somebody is listening to us,” Mrs Hawkins said. “It’s something we’ve been wanting in Shetland for donkey’s years.
“It’s high time it was looked at and I really appreciate that the government is doing that. We do have to be on a level playing field with the rest of the UK.”
The fuel issue was the only element of Tuesday’s budget which stood out as being particularly relevant to Shetland, although the VAT rise will clearly impact on everyone.
Other key highlights:
● A £1,000 increase in income tax allowance aimed at taking the lowest paid out of income tax altogether
● Child benefit will be frozen for three years while tax credits for higher earners will be reduced.
● Public sector workers earning over £21,000 face a two-year pay freeze; those earning less than £21,000 will get a flat pay rise worth £250 in both years.
● Armed service personnel in Afghanistan will see their operational allowance doubled.
● The basic state pension will be linked to earnings from next April, with the pension guaranteed to rise in line with earnings, prices or 2.5 per cent, depending on which is the greatest.
● The government will also speed up the increase in state pension age to 66, and consult on phasing out the default retirement age.