If the Chancellor wants to raise more money through taxes, he should be cutting fuel duty by 3p, not increasing it.
Chancellor George Osborne is getting ready to increase fuel duty by 3p per litre in January 2013 — an increase that has already been postponed twice, in January and August of this year. [UPDATE 05/12/2012: The 3p increase in fuel duty scheduled for January 2013 has now been cancelled. This was announced in the Chancellor’s Autumn Statement earlier today]
Yet even that 3p per litre is deceptive — once you add on VAT, which is charged on the price including fuel duty, the actual increase will be 3.62 pence per litre. That’s an extra £2.90 per tank on a Ford Transit. It soon mounts up.
While I appreciate the environmental logic behind increasing fuel duty — people won’t use less fuel and cut pollution unless they are forced to — it is rather brutal and I very much doubt that Osborne is remotely bothered about the environment.
Increasing fuel duty is simply a handy way to raise money to fill the Treasury’s empty coffers — or is it?
Counter-productive cuts
A new report from the National Institute for Economic and Social Research (NIESR) suggests that increasing fuel duty by 3p will ultimately result in the loss of 35,000 jobs and a 0.1% fall in GDP. The logic is simple — higher fuel prices mean that ordinary consumers like you and I have less spare money to spend on other things, so other businesses suffer.
This argument works both ways, according to NIESR. If the Chancellor decided to cut fuel duty by 3p instead of raising it, the economy would get a very significant boost. According to NIESR, cutting fuel duty by 3p would deliver the following benefits:
- Create 70,000 jobs
- Boost GDP by 0.2%
Of course, in the short term tax revenues would fall — by approximately £1,800m, according to NIESR. But that’s less than 0.2% of GDP and this growth plus the increase in employment would be likely to compensate for this in the longer term, helping to speed up the UK’s recovery and kick-start growth.
Don’t kid yourself
I very much doubt that there is any chance that Chancellor George Osborne is going to change direction now and start cutting taxes to boost the economy. He says it’s not prudent and he needs to reduce the UK’s debt, but as we are seeing in countries such as Greece, Spain and Italy, if cuts lead to rising unemployment, then tax receipts fall and no one benefits.
How you can save money on fuel
Although we can’t control our government, we can control our own purchasing decisions — and the simplest way to save money on fuel is to spend less on it.