Pump up the prices

IT IS bad enough having to fork out more than 80p a litre every time you fill your family car with unleaded just so you can get to work and do the shopping. Paying through the nose for your petrol, however, is just the tip of the iceberg. If the cost of fuel continues to soar, the knock-on effects could reach into virtually every corner of our lives.

BA was among the first to react as the price of crude oil hit a 13-year high, announcing a £5 increase in the cost of return tickets bought in the UK. Australian carrier Qantas posted even bigger fare increases - and who would bet against other airlines following suit?

So we will be paying more for our holidays in the sun.

And what else?

If fuel prices remain high, the cost of public transport may well go up too. No decision has yet been made at First buses in York about whether the higher fuel prices will be passed on to customers, says the company's commercial manager Peter Edwards.

If prices are to go up, it will be a group-wide decision, not confined to York alone.

With 5p having been added to the cost of some return and single fares in York at the beginning of April, it would not be a popular move.

"But we don't know yet how the price of fuel is going to affect us," says Mr Edwards.

GNER stresses that its fares are fixed until September, so there will be no 'knee-jerk' increases.

The company hopes the higher cost of motoring may drive more passengers on to the train.

But even the railways aren't immune from the costs of fuel.

Even though only a quarter of GNER trains are now diesel operated (the rest being electric) if fuel costs continue to rise in the long term, ticket prices may have to be reviewed, says spokesman John Gelson.

It is not only transport that will become increasingly expensive as fuel costs rise, however. The knock-on effect of increased fuel prices may eventually trickle down to everything from the price of milk and a loaf of bread to the clothes we wear.

Derrick Potter, boss of North Yorkshire-based transport firm the Potter Group, says fuel accounts for 30 per cent of the cost of running a heavy goods vehicle - and even small increases in the cost of fuel can have a dramatic impact.

Simply transporting goods by train rather than lorry won't necessarily keep the price down, he says.

The fuel tax on subsidised 'red diesel' that freight trains use is set to go up by almost 50 per cent in September - a huge increase.

If costs rise to transport goods and services somebody is going to have to pay more for them.

Mr Potter believes it could be the consumer. Maybe not immediately. "But it has to come down to it at the end of the day," he says.

Supermarket giants locked in a vicious price war are unlikely to admit that.

"As best-value retailers, we always aim to be the lowest price on the market," an Asda spokesman said carefully.

But something will have to give. Farmers fear it could be they who suffer.

If haulage rates go up as a result of increased fuel costs, supermarkets locked in price wars with each-other may decide to recoup the cost not from the consumer, but from the producer, says Rosie Dunn, chair of the York East branch of the National Farmers' Union.

That would mean paying farmers less for their produce.

Taken together with the proposed increase in fuel tax on 'red diesel' that farmers use to power tractors and combine harvesters, struggling farmers could effectively be hit by a triple whammy.

They face the same increase in the costs of running their own cars - vital for farmers living in rural areas - that every other motorist do. And they also face the prospect of being paid less for the food they produce even as the cost of producing it goes up.

"It's just another blow," says Rosie.

Industry and manufacturing, as well as agriculture and the haulage business, will also suffer, predicts Derrick Potter: and that means jobs and people's livelihoods could be on the line.

He says Britain has some of the highest fuel taxes in the world and any further increase in fuel prices is bound to hit manufacturing hard.

"You have to bring in raw materials and when you've got your finished product, take it to the market place," he says. "That's a double whammy."

With all these problems following in the wake of increasing fuel costs, it is small wonder that many people representing the motoring, haulage and agricultural lobbies are beginning to get angry.

If fuel costs continue to rise, the very real prospect looms of further mass fuel protests similar to those we witnessed in autumn 2000.

Back then, blockades of oil refineries led to many petrol stations running dry and massive queues as desperate motorists tried to get a share of what little petrol was available.

Convoys of lorries and tractors then converged on London from all over the country, blocking many roads as they did so, as protesters took their message to Tony Blair.

Are we likely to see the same thing happening again?

Derrick Potter admits there is a good deal of 'unrest'.

The haulage industry is going through a very lean time, he says. But Chancellor Gordon Brown has it in his gift to do something about it, he insists, be reducing or freezing fuel duty.

"It's no good saying they can't. That's rubbish," he says bluntly.

The reason the Government has so much power to influence the cost of fuel is because out of every 81p you pay for a litre of petrol at the pump, 59p goes to the Government as tax, either in the form of fuel duty or VAT.

The AA, which estimates that the Chancellor makes about £1,000 every second out of a combination of fuel duty, VAT on fuel, and excise duty, is also calling on the Government to consider scrapping September's proposed fuel duty increases.

In his April budget the Chancellor announced that from September 1 the duty on ultra-low sulphur petrol (which makes up the vast bulk of petrol sales) is set to rise by 1.92p a litre (half a penny above the rate of inflation) to just over 49p a litre.

Fuel duty on heavily subsidised red diesel is set to go up from 4.22p a litre to 6.64p a litre - a rise of nearly 60 per cent.

An AA spokesperson said if fuel prices remain high "we would ask him (the Chancellor) to consider either not introducing the rise at all, or to delay it."

Even some Labour MPs feel that would be the right thing to do.

"If, due to stronger growth in the world economy, the rise in oil and petrol prices is sustained during the coming weeks I think there will be a clear case for the Chancellor reviewing the planned above-inflation increase in petrol duty proposed for September," says Selby MP John Grogan.

If fuel prices continue to rise and the Government is not prepared to do something about fuel duty, then it had better look out, warn hard-line farmers.

David Handley, the Monmouth farmer who is chairman of Farmers For Action, says just as in 2000, industry, hauliers and farmers could be united in protest at the cost of fuel.

Any protests planned would be different from the refinery blockades of 2000, he said.

"I don't think you can ever do the same thing twice.

"But we have things up our sleeves. If people (the Government) don't listen, there will be a mass movement."

Along with the other problems caused by rising fuel costs, it is probably the last thing any of us need.

Why petrol costs so much

There are many reasons for the current high price of crude oil, which is driving the rise in petrol prices.

Fears over security and supplies from Middle Eastern oil platforms are only two factors.

There are particular concerns about Saudi Arabia, where terrorists killed six people, including two Britons, in an attack on a refinery.

Ironically, there is less concern about Iraq, where production has, on the whole, been rising steadily despite the bombing of an oil pipeline near Basra last week.

Another factor was oil cartel Opec's decision to cut production of crude by a million barrels a day in April.

The high price of crude is not only a problem of supply says Manouchehr Takin, an oil market analyst with the London-based Centre for Global Energy Studies.

It is also a question of demand.

The recovery in the United States economy, and in the economies of many other developed nations, is driving up demand for oil.

Then there is the phenomenon that is China.

With its economy growing at a huge rate - as much as ten or 11 per cent a year - the sleeping giant of the Far East is rapidly waking up; and its desire for oil is insatiable.

The net result, says Mr Takin, is that the price of crude has been high for several months - and has now hit $40 a barrel, close to the all-time high of $41.15 in October 1990 after Iraq invaded Kuwait.

Updated: 10:12 Thursday, May 13, 2004