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It's almost Budget time – and, once again, George Osborne faces a fuel dilemma

By Peter Hoskin
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You’d never have guessed it: petrol prices are set to rise. Thanks to soaring wholesale prices and a weakening pound, the cost of a litre at the pumps has already gone up by 6p over the last month. But according to the President of the AA – whose comments are reported in today’s papers – there’s another 3p rise to come. And then? One assumes it will go higher still.

All of this will be achingly familiar to George Osborne. It seems that ahead of every Budget or Autumn Statement he’s faced concerns about petrol prices, and demands for him to act – and this time is no different. This time, the Petrol Retailers’ Association has written to the Chancellor asking him to cancel a 1p rise in fuel duty set for this September. “We have had no reply,” deadpans their chairman to the Times (£) today.

Perhaps Mr Osborne hasn’t pulled out his quill and ink set because he doesn’t yet know what to do. Fuel levies, after all, are such a troublesome matter for any Chancellor. You can postpose hikes in the duty or even cut it – as this Government has done – and it’s still barely a drop in the oil field. Taxes, overall, account for about 60 per cent of the pump price, and that’s before we get onto external factors such as those affecting costs at the moment. With the cause of deficit reduction faltering, the fiscal conservative in Mr Osborne might be reluctant to keep acting on fuel duty, with a penny here and there, when it has so little real effect.

But Mr Osborne, Party Strategist will also be acutely aware of how politically dangerous petrol prices can be. It was, don’t forget, fuel which gave the original Blair government its first real shock in the polls – and the issue has retained its potency since. Indeed, according to a poll in the Sun on Wednesday, the public wants fuel prices to be the Chancellor’s top priority in the next Budget. There’s far more support for a significant cut in fuel duty than for the reinstatement of the 10p rate. Perhaps Mr Osborne will want to act, if only so he is seen to be acting.

Although I remain fairly keen on the idea of a restored 10p tax band, that Sun poll does add further weight to the question that Paul Goodman asked yesterday: “What would lower earners prefer - lower taxes or cheaper energy?” Come the next election, the numbers on people’s receipts and credit card statements could matter more than those in their tax bill.

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