Richard Schooling's blog: 22 September 2011 - Time to swap fuel tax for road tolls?
22 September 2011
Richard Schooling is chief executive of Alphabet
Public figures have to choose their words carefully. So when one says that the UK tax system doesn't look "like it was deliberately designed" you know he really wanted to say that it's a complete dog's breakfast.
Actually, that's being kind to it. I've always thought that anyone who fancies a simple life should steer well clear of, say, HMRC's web site. It's stuffed with 40-page documents bearing 15-digit alphanumeric titles, which explain things like the rules for calculating the NI on the tax on a claim for a sandwich bought by an employee who was working at a location more than half-an-hour's travel time from their normal place of work.
Few people, then, would disagree with the Institute for Fiscal Studies' assessment of the tax system as "inefficient, overly-complex and frequently unfair", in a new report calling for a complete overhaul of the UK's tax structure.
All the same, some of the report's analysis does seem a little odd. On road taxes, for example, it recommends getting rid of fuel duty (hooray!) and replacing it with a comprehensive congestion-charging system (are you sure?) because "congestion is the main cost of driving" (is it?).
I think your average 10-year-old could quickly disprove the last assertion without resorting to a calculator. The IFS report rather gave the game away when it said of fuel duty: "As cars become more efficient this significant source of government revenue will decline rapidly."
Are we talking about simplifying a Byzantine system here? Or are we really talking about protecting key revenue streams?
Without wishing to pour cold water on the whole congestion-charging idea, perhaps someone should have taken the report's authors aside and pointed out that road congestion isn't exactly a growth area, either. It's been falling steadily for three or four years and, while the DfT can justifiably point to recession and bad winters as contributing factors, it's also the case that things like high fuel costs, the Internet and demographic shifts are changing the way people use cars.
There's also the often-overlooked point that fuel duty is effectively a kind of congestion charge. Read the latest UK energy statistics from the Department of Energy and Climate Change and you'll notice that energy consumption by road passenger transport rose by 3% between 1990 and 2010 while consumption by air transport over the same period went up by 68%.
One reason for the massive difference is that three-quarters of the retail price of road fuel consists of duty and VAT, whereas aviation fuel is entirely untaxed. No wonder Heathrow is usually packed like a sardine tin while the M6 Toll is spookily quiet most of the time.
If the IFS proposals ever get the green light, we could end up with a hugely expensive white elephant of a congestion-charging scheme and a transport tax system that's just as much of a Labrador's lunch as the current one.
That's not to say that fuel duty should not or could not be reduced. One of the IFS's other proposals is to apply VAT to everything that's currently exempt. If the Government did that as well as slapping a duty on jet fuel, it could easily knock a few pence off the price of petrol and diesel.
That way, there might actually still be some road congestion to levy a charge on in 10 years' time.
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