Could motorists be hit with the first fuel duty rise in ten years in this month’s Budget? According to the Sun, the PM’s chief advisor Dominic Cummings wants to use petrol and diesel as a revenue-raiser to fund big infrastructure projects outside the capital. But ending the fuel duty freeze after a decade might not be a good idea, particularly when many new Tory voters in the North are likely to be the worst affected.
Fuel duty is an easy way to raise revenue in theory, as the demand for fuel is always high. It is also a tax that is difficult for motorists to avoid (though this doesn’t stop some from trying). Yet no chancellor since 2010 has been brave enough to deal with the political backlash of hiking fuel duty, knowing how wildly unpopular it is. Even after the 2010 freeze, fuel duty remained higher in the UK than in any other major economy for years – a financial burden felt by motorists up and down the country.
Driving is overwhelmingly the preferred mode of transport in the UK. 83 per cent of passenger travel takes place in cars, vans or taxis. If Rishi Sunak announces a fuel duty rise, every one of these trips would be affected by the tax increase. And if the Government does hike the tax, it will have to manage the response of the 37 million drivers who will end up paying a higher petrol bill (the potential rise is reported to be roughly two per cent, in line with inflation).
Even without paying more for fuel, motorists aren't exactly under-taxed at the moment. Currently over 60 per cent of the pump price, for both petrol and diesel, is the cost of fuel duty alone – and that’s before you add another 20 per cent on the total price to include VAT.
As the Government tries to appeal to its new voter base in the Midlands and North, it also needs to consider the impact higher travel costs will have on those looking for work outside city centres, where public transport services are inferior. Any revenue from fuel duty could end up being off-set by productivity stagnation, as rural businesses find it costly to transport goods or difficult to recruit employees who need to travel for work by car.
A decision to unfreeze fuel duty is by no means confirmed. But even talk of fuel duty rises suggests Number 10 is struggling for ideas and is in a bit of a bind over its first Budget. The Tories have made new spending pledges worth tens of billions of pounds they need to make good on. But while they must splash the cash, they will still want to retain some level of fiscal responsibility.
Hiking fuel duty may seem to some to be an easy way to bring in billions of pounds to help balance the books. What’s more, it could signal a seriousness on the part of the Prime Minister and his Cabinet to reach the 2050 net-zero target. But spending and signalling will come with a cost. Boris’s fuel tax hike would certainly help boost the Government’s coffers, but are the Tories prepared to pay the political price that comes with hitting motorists in the pocket?