According to media reports, a reduction of 2p per litre in the fuel levy is under consideration for the autumn budget. The fuel levy has been held at the present level since 2011.
While this might appear trivial, it does amount to a loss of about £1.5 billion per year for the treasury.
Savings for consumers are certainly welcome. This applies to both private and business users. It would provide some sort of cushion against inflation, any rising costs associated with Brexit and a general stimulus for the national economy. Quite obviously, it would be an incentive for voters if there is – as many expect – a general election in the near future.
The chairman of the Petrol Retailers Association, Brian Madderson, supports such a move. “In a post-Brexit environment, fuel duty cuts would help stimulate the economy and must be introduced as soon as possible by the new Chancellor.” Madderson points out the government’s own report of 2014 on fuel duty modelling which supports his viewpoint.
On a practical level, it should be noted that any shortfall in treasury revenue would likely be recovered by allocating funds from another source or – more likely – by the introduction of some new road tax or toll. This was already proposed earlier this year as a solution for the loss of fuel levy income resulting from increased use of electric vehicles.
However, a reduction in fuel costs would still function as a stimulus in itself, as the PRA asserts.
The environmental impact
involves a number of variables that are hard to assess without further detail
of how a fuel duty reduction might be structured. This really is an issue as
polls show environmental concerns are high on the public’s lists.
Clair Haigh, chief executive of Greener Journeys, a campaign to promote the use of public transport, views the fuel levy as an environmental tax that should be used to promote public transport and adoption of electric vehicles.
Looking at the air pollution figures, she has a valid point, even though adopting green policies is often at odds with profit – and, therefore, growth – in the economy.
Since the initial freeze on duty in 2011, there has been a 4% increase in road traffic; an additional 4.5 million tonnes of CO2; an additional 12 thousand tonnes of harmful NOx and 816 tonnes of PM10s (a particulate); up to 200 million fewer bus journeys; and 60 million fewer rail journeys.
It needs to be noted, as a counter argument, that bus services have been reduced and train and bus fares have increased over the same period. These are also factors that increase vehicle usage, quite apart from a considerable number of businesses that simply don’t have an alternate choice of transport.
It should be hoped that the treasury would structure the proposed reduction to gain the maximum benefit, rather than use it as a vote-winning, windfall bonus for consumers that could result in unexpected and possibly negative results.