Permanently freezing fuel duty at the Budget would mean a loss of £5.5 billion each year to the public finances and benefit the richest, a think-tank warns today.
The Social Market Foundation said that a rumoured freeze in the rate of fuel duty would mean a loss of £27bn over five years to the Treasury, undermining politicians’ claims to believe in “sound money” and balanced budgets.
Both the Conservative Government and the Labour Opposition have emphasised the importance of fiscal discipline as the economy struggles. But at the same time, both parties are leaning towards big giveaways on fuel duty. Labour has called for a duty freeze and the Government is considering making last year’s temporary 5p-per-litre cut into a permanent policy – the largest fuel duty cut in history.
In a briefing note published today, the Social Market Foundation calculates that maintaining this freeze for the next five years means that the public purse will lose roughly £5.5bn each year, compared to if the 5p-per-litre cut were removed and the rate rose in line with inflation. Over five years, losses amount to over £27 billion.
Instead, the SMF advises the Government to unfreeze fuel duty, and use the revenue raised to address the rising costs of motoring and the regional inequalities in transport access.
Fuel duty has been frozen since 2011, meaning the Treasury has foregone £100bn in tax revenue. The freeze and cuts have benefitted the richest the most – as of 2020, £17bn went to the richest households, and less than half that (£8bn) went to the poorest.
In the same period over 2,000 bus networks outside London have been reduced due to budget cuts and there have been up to 60 million fewer rail journeys. This spring, another 10-15% of England’s bus services are under threat of being cut.
Meanwhile, repeated freezes in fuel duty have increased the UK’s CO2 emissions by as much as 5% as people drive more because fuel is cheaper.
Gideon Salutin, Researcher at the Social Market Foundation, said:
“We are told every day that the public finances are under great strain, and about the heightened importance of sound money. Yet our politicians are willing to wave away billions of pounds in tax revenue and trash their own claims to fiscal responsibility in order to hand some cash to better-off drivers.”
“Freezing fuel duty yet again would obstruct the UK’s commitments to net zero transport and would hardly help out the most vulnerable. Instead of handing £5.5 billion a year for motoring, that money could be used to provide new buses and rail hubs for rural communities, provide alternatives for those stuck in expensive car ownership, finance green industrial growth, and deliver on more pressing needs.
“Voters need and are more concerned with failing transport infrastructure – the meagre benefits on fuel duty freezes will be remembered by few, but will cost the nation dearly for years to come.”
- The SMF paper, Why this fuel duty freeze is different, will be published at https://www.smf.co.uk/commentary_podcasts/fuel-duty-and-public-finances/ on Wednesday 8th February, 2023.
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