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The future of fuel duty in the UK

With the UK Government’s finances in a perilous state and with the Road to Zero at the forefront of the government’s mind, there has been renewed pressure to increase fuel duty.


What is the current duty rate?

The excise duty on-road fuels is 57.95ppl and has not changed since March 2011. Excise duty is just one of the taxes on fuel, for a more detailed overview of what makes up the price of fuel see our report on the topic here.


Why increase now?

Despite not increasing excise duty since 2011, there have been several rumoured increases in between, so this is not an unusual scenario. The treasury often uses a tactic referred to as “pitch rolling” to ready the public for a potentially unpopular policy. It is a way to test the water before making an actual change.

Due to COVID-19, the national debt has now tipped over the £2 trillion mark, and the government will be looking at numerous ways to help balance the books.


Transport consumption was down 55% between April and June compared to the same period in 2019, and this resulted in an estimated loss of £4.66 Billion for the quarter in excise duty alone when compared to 2019.


Green agenda

Increasing diesel and petrol duties could be a way to make electric vehicles more appealing to motorists. Despite the higher initial cost, the running costs are already significantly cheaper than diesel and petrol vehicles. This would help to widen that gap further, especially as the pump prices are on the increase from the lows of just over £1 per litre in May this year.


The price of fuel

Although fuel prices increased around the time lockdown ended, they are still around 10p below what they were at the end of 2019. Unleaded prices peaked in 2014 and then again in 2018 at just over £1.30, which opens the door for the government to increase duty while prices are still low in comparison.

However, back in 2007, a two pence increase in fuel duty saw prices increase over £1 per litre, the highest in Europe at the time, and lead to fuel protests across the UK. This followed the 2000 fuel protests, which saw only 24% of fuel stations with adequate supply.


Europe

The UK no longer has the highest fuel tax rates in Europe, so there is the potential for this increase to not be as emotive as it was two decades ago. France, Portugal and Germany all have higher rates of excise duty; however, Germany has recently cut VAT until the end of the year due to COVID-19.

So what might happen?

The pressure on the government to raise fuel duty will increase if the current economic woes continue. Whereas previous threats to increase fuel duty were made during more advantageous economic conditions, the condition of the economy in 2020 may make the decision more comfortable for the government to make and for people to understand. Add into the mix the government-sanctioned move towards electric vehicles, and there is a strong case to believe that the current rate of fuel duty will change over the coming months.


Sources

https://ec.europa.eu/energy/observatory/reports/Oil_Bulletin_Duties_and_taxes.pdf

https://www.gov.uk/government/statistics/oil-and-oil-products-section-3-energy-trends