Any rise in fuel duty would generate extraordinarily little revenue, warns FairFuelUK

Even though The Chancellor’s Spending Review is unlikely to cover expected tax changes, FairFuelUK has learned from Treasury sources that UK’s drivers will be taking a significant burden to repay the Nation’s spend during the Covid economic crisis – however research shows this will hit drivers hard while raising very little revenue in real terms.

A spokesman said:

“In layman’s speak, Rishi Sunak is paving the way to hit drivers hard in the next Budget. The world’s highest taxed motorists remain an easy target!”

The organisation said that telling leaks have been pouring out of No 11 in recent weeks, climaxing in what is expected to bring a draconian triple whammy for motorists:

1. Bringing forward new diesel and petrol bans to 2030
2. Wanting a road charging tax to replace fuel duty losses
3. Filling a £40bn black hole

With the backing of the RHA, FairFuelUK commissioned CEBR to analyse what a 2 to 3p increase in Fuel Duty would do to the economy and Covid economic reparation.  Their findings question the value of Sunak’s plans, revealing that:

1. Any rise in fuel duty would generate extraordinarily little revenue.
2. A rise in fuel duty would create economic damage, cutting GDP by about £600 million and reducing employment by about 8,000 jobs. It would add 0.6% to the CPI (inflation).
3. Despite the recent freeze, UK diesel taxes are the highest in any major economy while UK petrol prices are amongst the highest.
4. A rise in fuel duty would hit the poorest motorists most. Motorists in the poorest 10% of the population spend proportionately twice as much on fuel as the richer groups. A rise in fuel duty is regressive.
5. The impact of any rise in fuel duty will be cumulative. Essential vehicle users, especially LGV and HGV drivers, have already been hit recently by closed roads, closed lanes, speed restrictions, increased traffic jams and increased charges and enforcement penalties as a result of recent government action. The effects of a rise in fuel duty will be hitting sectors that already feel that they have faced an excessive increase in the burdens on them that result from government policy.
6. With growth in the online sector, vans are critical to the economy. The increase in the burdens on van drivers, like those on other road users, has already started to impact on their willingness to service clients. If this continues a critical link in the service chain could break.
7. The HGV sector is in a fragile situation. The average age of drivers is 55 with 13% over 60 and only 2% below 25. Profit margins are estimated at 1% only. The number of owner operators has been falling away. It is conceivable that a rise in duty could be the straw that breaks the camel’s back of this essential service.
8. Cebr research has shown that the policy of freezing fuel duty, in place since 2011, has been phenomenally successful, reducing the CPI by 6.7% compared with where it would have been and boosting household expenditure by £24 billion. With a policy that has proved successful, it would be bizarre to change it.
9. By 2040, fuel duty receipts will probably be less than a fifth of current levels, updating the projections above to take account of the likely ban on sales of fossil fuel based vehicles. The current fiscal crisis is long term and will need up to 50 years of revenue raising and expenditure constraint. Given that any revenue gains from higher fuel duties will be only temporary and will evaporate over time, it seems unnecessary to take the political and economic damage from raising fuel duty in return for very little long-term revenue. The balance of advantages seems adverse.
10. This means that even the relatively small short term revenue gains from a 2p rise in the rate of fuel duty, estimated at £250-470 million from the analysis in the economic analysis section, would dwindle to £50-90 million only (at 2019 levels of activity and prices) within 20 years. As the fiscal crisis is a long-term crisis, this indicates that a rise in fuel duty has a miniscule role to play in sorting the nation’s fiscal position

Craig Mackinlay Chair of the APPG for Fair Fuel for Motorists and Hauliers and MP for SouthThanet said: “Fuel duty rises are bad for the economy, bad for inflation, bad for business and bad for jobs.  Nor are they supported by our constituents. The CEBR showed motorists in the poorest 10% of the UK population already spend proportionately twice as much of their disposable income on fuel as wealthier groups, so increasing fuel duty will have a disproportionate tax impact.  I respectfully as you must reject the green lobby’s calls and continue the successful and popular freeze on fuel duty.

Howard Cox, Founder of FairFuelUK, Secretary to APPG for Fair Fuel for Motorists and Hauliers said: “The raging war on motorists by the Government, local councils and well-financed environmentalist groups, including cyclists, is already destroying trust in our politicians. The highest taxed drivers in the world, do not need a virtue signalling fuel duty hike to appease a very small green minority, they like all consumers, along with small businesses need more money in their pockets to spend, so the Covid wrecked economy recovers through incentivisation not draconian fiscal punishment. The highly respected Cebr has told us that it would be economic and political suicide to raise duty. Why take that risk, Rishi?’

Douglas McWilliams, Cebr Deputy Chair and author of Report for FairFuelUK/RHA said: “The freeze on fuel duty is gradually bringing the UK rate of tax into line with the rest of Europe. It has reduced the CPI by 6.7% and raised household real incomes, especially those of poorest households, by £24bn. Why abandon it when taxing fuel hits the poor hardest, with the North suffering most and London least?”

RHA chief executive Richard Burnett said: “UK hauliers are responsible for keeping the UK economy moving. As the nation fights against the impact of Covid19, operators continue to work around the clock to keep shop shelves stocked and hospitals and healthcare workers supplied with PPE. With the end of the transition period fast approaching and the uncertainty that may mean for their future, for many, a fuel duty increase will mean the end of the road. Every penny increase, either in the price of fuel or as a duty hike, adds over £400 a year to the running costs of a typical 44 tonne truck. Chancellor, you need the services this industry provides more than ever. Please, don’t make UK hauliers foot the bill for keeping the nation safe and fed.”