Green Budget? Treasury reportedly considering fuel duty hike

The government could end the decade-long fuel duty freeze, increasing it by up to 5p per litre in the Autumn Budget, according to reports today in The Sun.

Citing Treasury sources, the paper reported that Chancellor Rishi Sunak was actively considering ending the fuel duty freeze which was introduced in 2011, pausing the long-standing policy of increasing fuel duty in line with inflation each year. Ending the freeze would immediately lead to a 2p per litre increase in fuel prices at the pumps.

However, The Sun also reported that the Treasury was considering plans for an additional 3p per litre hike on top of the 2p rise.  

An internal analysis had considered a larger double digit increase, but officials deemed a 5p increase to be a "realistic" option.

The news follows reports over the weekend that the Treasury is also considering an increase in corporation tax to bring it into line with the average for G20 nations, as well as changes to capital gains tax that would raise more revenue from high earners.

Sources indicated that the Treasury was keen to start the process of rebalancing the books from this autumn following the huge hole that has been blown in the public finances by the coronavirus crisis. However, Sunak is said to be fully aware of the need to steer clear of any spending cuts or tax rises that could undermine any economic recovery. Meanwhile, polling suggests increasing taxes on high earners could prove popular.

There have also been long-running calls from environmental campaigners and some within the Treasury for the government to end the fuel duty freeze.

According to the Institute of Fiscal Studies (IFS) the freeze cost the exchequer £11.2bn in 2019-20 alone, compared to a scenario where fuel duty was allowed to rise in line with inflation over the past decade.

Instead, the freeze has seen the cost of motoring fall sharply compared to other forms of transport, leading to more congestion, air pollution, and carbon emissions. An analysis by the website Carbon Brief earlier this year suggested that the fuel duty freeze has led to UK carbon emissions being five per cent higher than they otherwise would have been.

The Treasury has also seen revenues from fuel duty fall sharply during the first half of the year due to the UK-wide lockdown, while officials remain concerned that the long-term shift towards electric vehicles and home-working will result in receipts from fuel duty dwindling over the coming decades.

However, an increase in fuel duty would still present a significant political challenge. Fuel duty in the UK remains high relative to many other comparable countries and previous reports suggesting the Treasury was considering an end to the freeze - including reports ahead of this Spring's Budget - have seen the Chancellor ultimately reject the idea.

Robert Halfon, the influential Conservative MP who has led the campaign against previous attempts to end the fuel duty freeze, told The Sun that "now is not the time to clobber workers, families, white van men and women and our public services with a fuel duty increase".

Opposition to any hike in fuel duty would have to be set against growing calls from some Tory backbenchers for the government to pull forward its date to end the sale of internal combustion engine vehicles to 2030.

The Times reported this weekend that a growing band of MPs is urging the government to pull forward the current target date by a full decade when it publishes its response to a consultation on the policy later this month. The government has said it is minded to pull forward the date from 2040 to 2035, while exploring whether an earlier date is feasible.

Advocates of an earlier date maintain it is possible to ensure all new vehicles for sale are zero emission by 2030, but opponents fear significant challenges catalysing demand for electric vehicles (EVs) and building up a supply chain capable of meeting demand.

A report compiled for the Financial Times by consultancy Oliver Wyman this week warned that despite falling battery costs EVs are likely to remain more expensive to produce than conventional models through to 2030, posing a threat to auto manufacturers' profit margins.

As such, calls are continuing for governments to do more to accelerate the shift to EVs through increased investment in R&D, production capacity, and recharging infrastructure, as well as higher levies on internal combustion engine cars.

Campaigners hope increased support for the transition to zero emission vehicles could form a key part of the Treasury's 'green recovery' programme, which is expected to advance further at the Autumn Budget with key decisions imminent on the government's long-promised Energy White Paper, Green Heat Strategy, energy efficiency programmes, and industrial decarbonisation efforts.

Any increase in fuel duty would likely be welcomed by green groups and EV advocates. However, some remain wary of environmental concerns being blamed for a tax hike that would impact millions of people in the midst of a recession and potentially drag climate policy further into what many regard as an escalating 'culture war'.

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• Topics
• Policy
• Politics
• Taxation
• fuel duty
• Treasury
• Budget 2020
• Coronavirus
• Green recovery