Twenty years ago this month Britain briefly endured a different sort of lockdown, as fuel protesters picketed oil refineries and petrol stations ran dry. Supermarket shelves emptied due to panic-buying and some motorists who had failed to fill their tanks found themselves stranded. For the only time during Tony Blair’s premiership the Conservatives very briefly ran ahead of Labour in the polls. The Labour lead was restored, however, when Gordon Brown cut duty and announced he was abandoning the ‘fuel duty escalator’ which had been introduced by Kenneth Clarke.
Memories of those few days in September 2000 explain why governments ever since have been reluctant to raise fuel duties. For the past decade duty on road fuel has been frozen. When Philip Hammond floated the idea of suspending the freeze there was such outrage from Tory backbenchers that in the event he retreated and left it untouched.
Is Rishi Sunak made of firmer stuff? Over the weekend reports emerged that he is thinking of doing what Hammond failed to do. Not only might he abandon the freeze, which would mean petrol and diesel prices rising by two pence a litre in the Budget, in line with inflation. It is reported he might put an extra three pence on top.
Few people like paying tax, and fuel duty is often attacked as a regressive tax, but the reluctance even to increase fuel duties with inflation is out of kilter with other fiscal measures of the past decade. VAT was raised by George Osborne, adding an extra 2.5 per cent to the price of most goods. An election pledge to freeze the TV licence was abandoned. And all along, the government was running a deficit, failing every year to raise enough revenue to match its spending.
The stance on fuel duty looks especially odd given that oil prices have fallen appreciably in recent years. George Osborne could have jacked up fuel duties by 10 pence when crude oil prices collapsed in 2014 and no-one would have noticed – motorists would still have been paying less at the pumps. Moreover, the fuel duty freeze has occurred over a period in which the government has committed itself to policies aimed at reducing and eventually eliminating carbon emissions. The government is prepared to countenance an outright ban on petrol and diesel vehicles from 2035, possibly earlier – making cars unaffordable for many people unless the price of electric vehicles falls rapidly -- and yet it is not prepared to put a single penny on fuel now. Motorists have responded as they always tend to do when petrol prices are low – they have bought large, more thirsty vehicles. Anyone who is sensitive to fuel prices could cut their bills substantially by buying a more fuel efficient car. Instead, motorways are packed with SUVs.
This year the government is facing a deficit of over £300 billion. It can’t go on like this, spending ever more than it raises in revenue, without risking inflation or national bankruptcy. If it is not prepared to cut spending then it will, at some point before too long, have to raise taxes. Ending the fuel duty freeze seems not an unreasonable place to start.