Radical plan for monthly fuel duty increases
01 November 2018
Author: Simon Harris
Fleet experts fear fuel duty could be in for more frequent rises following the Budget. Simon Harris reports.
The long-term freeze on fuel duty could be coming to an end if the government adopts advice from an influential think tank.
Fleets might have been spared a fuel duty rise in the Budget yesterday (29 October) - although at the time of writing we couldn't be sure as we went to press four days before Phillip Hammond gave his speech to the House of Commons - but the Institute of Fiscal Studies (IFS) has called for fuel duty rises in line with inflation every month.
Fuel duty has been static since 2012, with unpopular and politically sensitive planned increases scrapped since then in annual reviews.
The IFS published its 'Green Budget' report two weeks before the Chancellor of the Exchequer's annual statement, and it says fuel duties have fallen by 15% in real terms since 2010-11, and by 27% relative to the plans that the 2010 coalition inherited. Had the government kept to those plans, receipts would have been an estimated £9 billion higher in 2018-19.
Paul Hollick, MD of consultancy firm TMC, said, "Despite the Prime Minister's high-profile party conference promise to keep fuel duty frozen in the Budget, higher rates may still be on their way.
"The IFS says its idea would allow the government to steadily - others might say stealthily - recoup the £9 billion a year business and motorists currently save due to the eight-year freeze on fuel tax."
More frequent increases in fuel duty could make budgeting more unpredictable as well as see a more pronounced increase in fuel costs for fleets.
Hollick says that while Prime Minister Theresa May ruled out a Budget-day rise in fuel duty, Hammond's earlier justification for reviewing the tax was based on the arguments put forward by the IFS.
"Philip Hammond must be strongly tempted at the prospect of using fuel duty to trickle-charge the Treasury's decidedly flat fiscal batteries," said Hollick.
"So I would not be at all surprised if, in the autumn Budget, the Chancellor rounds off the announcement of yet another fuel duty freeze with the caveat that there will be a review of the duty regime next year.
"Estimates of the size of the hole in the UK public finances range from £20 billon to £60 billion. There is only likely to be one outcome of a fuel duty review.
"The IFS solution would take the political sting out of increasing fuel taxes. But it will be a sting with a very long tail."
Campaigners have long lobbied that fuel duty increases were not necessary when rising oil prices and exchange rate pressure on sterling have resulted in government revenue increases from VAT receipts making up a larger component of the price paid at the pumps.
Oil prices have recently been reported at a four-year high, and with sterling's weakening following the 2016 referendum on EU membership, and with further uncertainty ahead over the terms of the UK's departure from the EU, it's unlikely that fuel prices will fall in the short to medium term.
And petrol and diesel prices are among the many items used to calculate the rate of inflation, so it would result in a self-fuelled increase. Higher fuel costs also result in higher prices for goods transported by road, leading to further inflationary pressure.
Hollick added, "What no one can argue with is that fuel tax is possibly the worst thing you can link to inflation, because fuel prices themselves are one of the strongest contributors to higher prices."
A full breakdown of what the Budget means for your fleet and your drivers will be in the 13 November issue of BusinessCar.