The increase in VAT from 17.5 per cent to 20 per cent is bringing New Year misery for motorists at the pumps, with the cost of petrol and diesel rising typically by 3-4p a litre as a result of the 2.5 per cent hike.
Garages which would typically have charged £1.36 a litre for unleaded are now asking for £1.40 a litre, while diesel in most places has risen from £1.40 to £1.43.
The duty increase has led to renewed calls for the UK government to introduce its proposed fuel duty pilot project for rural areas like Shetland.
Western Isles SNP MP Angus MacNeill has called on the coalition government to honour its promise of a fair fuel regulator made before the election.
Drivers were already being asked to stump up much more than the UK average of £1.24 for unleaded and £1.28 for diesel before today’s tax hike came into effect.
Their financial burden will not be helped by an increase in fuel duty which was introduced on January 1st. That itself followed a previous hike in October.
The UK government pledged to increase VAT as part of its emergency budget last June.
The double-whammy of tax rises will have an impact on businesses which depend on fuel to carry out their daily duties.
Director of haulage firm Shetland Transport Hamish Balfour said Shetland’s fuel prices were almost on a par with Norway, which has long-since been regarded as high.
He said: “At one point 85 to 87 per cent of the cost of fuel was on duty. Obviously the government is now pushing the price up through duty. I was speaking to somebody in Norway last week, and we’re not far off what the price is there, now.”
He said fuel is clearly seen as an “easy target” by the government, and likened it to the drinks trade.
“Scotch whisky is dearer to buy in this country than many other countries,” he said.
As for VAT, Mr Balfour said his firm would pass on the increase to customers.
Depot manager at JBT Distribution Ltd, David Paul, said the VAT increase would be a setback.
“It’s a major cost, and it will have an impact on us. A large percentage of our costs is fuel-based and we definitely will see an increase.
“Any rise is never good news, particularly up here. We’re paying a lot more per litre than we would on the mainland.”
Chancellor George Osborne’s first budget incorporated the toughest package of spending cuts and tax increases seen in a generation.
The VAT increase brings the tax to its highest level. As a result prices will be going up across the board, apart from food and children’s clothing.
The tax hike has been heavily criticised by the Association of British Drivers.
The association insists motorists are due a fairer deal, not least because 84 per cent of all journeys are made by car.
Its chairman Brian Gregory said: “Fuel tax increases don’t just hurt the driver and our hard-pressed haulage industry, they will be reflected in price rises at the shops for everyone.”