Labour woos Lib Dems for vote over VAT on petrol

Shadow Treasury Minister Angela Eagle has appealed to MPs to “give immediate relief to hard-pressed motorists” after targeting Lib Dems because Nick Clegg attacked the idea of a VAT rise during the election campaign.

Soaring pump prices have led to mounting anger from motorists, with drivers in rural areas particularly hard hit because they are more reliant on their cars, and this afternoon MPs will vote on a Labour motion urging the Government to reverse January’s 2.5 per cent increase on fuel.

Although the vote will be binding on the Government, Labour hopes it can convince some coalition MPs to side with it to deliver the Government a bloody nose.

In her letter to Lib Dems, Ms Eagle attacks the VAT rise as “the wrong tax at the wrong time “ and claims it is adding £1.35 to the cost of filling up a 50-litre tank with unleaded petrol.

Motorists are due to be hit with a further painful duty increase in April, although Chancellor George Osborne is almost certain to cancel that in next week’s Budget.

In her letter, Ms Eagle said: “Even within its self-imposed fiscal straitjacket, it is possible for the government to put right part of its mistake and reverse the VAT rise on road fuels using the extra £800m from the bank levy and securing the appropriate EU derogation. This would give immediate relief to hard-pressed motorists in your constituency and around the country.“

The VAT rise on fuel is set to earn the Treasury an extra £700m this year, but Labour says this will be offset by an extra £800m the Government will receive from the bank levy this year.

Today’s motion calls for “immediate steps” to reverse the VAT increase and for the Government to “look again” at the planned April duty increase in the Budget.

Shadow Chancellor Ed Balls said: “At a time when world oil prices are going up, the Tory VAT rise is making things worse. It is putting an extra on £1.35 the cost of filling up a 50-litre tank and adding to the growing cost of living for families on low and middle incomes. George Osborne needs to stop dithering and take immediate action to help hard-pressed motorists.”

Speaking last week, Transport Secretary Philip Hammond said: “People often talk about the VAT on fuel and the increase in VAT, the fact is that if people find they are spending more on fuel they tend to be spending less on something else across the economy.

“So the VAT thing is a slightly spurious argument I think, but there is a fuel duty increase, Labour’s fuel duty increase, planned for April and I am sure the Chancellor will want to be looking in the round at that whole issue.”