Ministers mull green tax U-turn

Gordon Brown and Alistair Darling will today meet oil industry leaders in Scotland as pressure mounts on the government to defer planned increases in fuel duty and reform proposed changes to road tax.

The prime minister and chancellor are to meet representatives of the oil industry in north east Scotland to discuss how production can be increased at a time when global demand for oil is outstripping supply, leading to record oil prices.

However, writing in The Guardian today the prime minister insisted that the current "oil shock" could only be tackled through global co-operation and insisted that the rising price of oil only underlined the economic as well as environmental importance of the government's green policies.

Warning that "it is the market's belief that ever-growing demand will continue to outstrip supply that has pushed up the oil price", Brown argued that "our strategic interests – reducing energy costs, increasing our energy security, tackling climate change – all now point in the same direction: decreasing dependency on oil, through substitution with other energy sources and through energy efficiency."

While he failed to refer explicitly to yesterday's calls for a deferral to planned increases to fuel duty and road tax, Brown insisted that the goal of developing a low-carbon economy and promoting more energy and fuel-efficient technologies "is now an economic priority as well as an environmental imperative ".

He also pledged to forge ahead with the government's alternative energy policies, reiterating plans to increase investment in renewables, build one of the world's first commercial-scale carbon capture and storage coal plants and undertake a nuclear building programme.

The meeting with the oil industry follows a day that saw the government's green taxation policies come under sustained attack through haulier protests over soaring fuel prices and complaints from a group of 42 MPs that plans to impose increases in vehicle excise duty of up to £200 on more polluting cars registered since 2001 were "retrospective" and would give green taxes a bad name.

Business secretary John Hutton and justice secretary Jack Straw both said that the prime minister was "listening" to the concerns, prompting speculation that the government could perform another tax U-turn, deferring a 2p increase in fuel duty planned for October and reassessing the proposed road tax reforms, which are due to take effect from April next year.

"We have to do the changes in a way that inflicts the least damage on people's personal family budgets and incomes," Hutton told Radio 4's Today programme. "We are trying to get this balance between encouraging choices to go green but not hammering people."

The chancellor is reported to be giving serious consideration to deferring planned fuel duty rises. He is also scheduled to meet with backbenchers next week to discuss their concerns over changes to vehicle excise duty.

The group of 42 MPs is calling for higher tax rates for the most polluting vehicles to only be imposed on new cars and not those already in the fleet. Speaking earlier this week, Rob Marris, parliamentary private secretary to Northern Ireland secretary Shaun Woodward, who has joined the group of backbenchers, said that imposing the changes on all cars registered after 2001 meant that it was effectively retrospective and would be difficult for many people to avoid by changing their behaviour.

"I am in favour of prospective green taxes to change people's decisions when buying a new car," he added. "But taxing them heavily on a car which may have been bought seven years ago does not seem a good way to go and will discredit the concept of green taxes."

However, such a change would cost the government up to £2bn and it is unclear if the chancellor can afford to bow to the backbenchers' demands following the government's recent attempts to soften the blow of the scrapping of the 10p tax band with £2.7bn tax giveaway.