UK Recovery damaged by higher energy prices

The government faced a widening campaign by business groups tonight calling for the mounting tax burden and soaring energy costs to be curbed.

The Major Energy Users Council (MEUC) has set up the Carbon Action Group to tackle the rise in fuel costs and the Federation of Small Businesses said the rises, coupled with VAT and other tax increases, were damaging companies and undermining a much-needed economic recovery.

The moves, which follow the establishment of the FairFuelUK campaign by transport firms this week, came as crude oil continued to climb from a low of below $40 two years ago to nearly $100 a barrel.

David Cameron admitted it could be a "very good idea" to introduce a fuel duty "stabiliser", despite having just introduced new petrol duties on 1 January and pencilled in a second rise for April in a bid to cut the budget deficit.

Andrew Bainbridge, MEUC chairman, said the Carbon Action Group would enable members to explore with government ways to cut the fiscal burden. "We are concerned about the lack of sensitivity around extra costs at a time when businesses are trying to recover from a recession. The jump in petrol prices is part of the government's long-term aspirations to create a low-carbon future," he argued.

John Walker, of the Federation of Small Businesses, said research showed that almost 40% of small firms believed the fuel duty rise would have a big impact on their business. "This, coupled with the increase in VAT, is really tarnishing the potential of small businesses, at a time when the government is putting much of its hope into the sector to put the economy back on to firm ground.

"It is unacceptable that the government has U-turned on its manifesto promise to introduce a fuel duty stabiliser and it is vital we see this put in place immediately to remove some of the strain from small businesses so they can get on with the job at hand of creating jobs and helping to grow the economy."

The prime minister insisted he was continuing to look at the option of a stabiliser, where the rate of duty is cut as oil prices rise, bringing in additional tax revenues to the Treasury.

He told a joint Downing Street news conference with the French prime minister, François Fillon, that he regarded it as "a very attractive idea".

"We have to look very carefully at exactly how much more revenue that does mean for the Treasury, what the effect is of a higher oil price," he said.

Meanwhile, Friends of the Earth's transport campaigner, Tony Bosworth, said he sympathised with motorists who faced sudden rises in fuel prices "but the reality is that the days of cheap fuel are over and ministers must stand up to the motoring lobby and make it clear that petrol prices will continue to rise."

Last night oil continued to trade at more than $98 on global markets due to production problems and rising demand but Libya's top oil official said $100-a-barrel oil would not harm the world economy and there was no need for the producers' cartel Opec to add more supplies. Shokri Ghanem, chairman of Libya's National Oil Corporation, said: "We think there is enough supply and there should not be any meeting at this point in time."