By Paul Homewood
There were reports after the Chancellor’s Autumn Speech last week about a hike in fuel duty:
According to the U.K.’s budget watchdog, British motorists will be paying more for their (fossil) fuels next year. A 23% increase in fuel duty will be imposed from March, predicts a paragraph in the Office of Budget Responsibility’s (OBR) backgrounder to today’s Autumn Statement by Chancellor Jeremy Hunt.
The increase would net the U.K. government $6 billion, says the OBR. Chancellor Hunt did not mention the measure in his statement to parliament, 17 November.
“This would be a record cash increase,” said the OBR’s Economic and Fiscal Outlook published earlier today. It would raise the price of petrol and diesel by around 12 pence a litre.
Fuel duty has been frozen in the U.K. since January 2011.
In today’s statement Hunt confirmed that electric cars would become subject to vehicle excise duty, but he did not announce any plans to introduce road pricing.
I wanted to wait for the OBR to publish the Supplementary Tables before commenting, and these are now available.
As the table shows, revenue from fuel duty is projected to rise by 21% next year, or £5.2 billion. The Chancellor of course has said that nothing has been agreed yet, and that fuel duty would be set in the main budget in March.
Fuel duty was temporarily cut in the March 2022 budget by 5p/litre, from 57.95p to 52.95p. This was intended to partially offset the rising price of petrol and diesel but was effectively funded by higher VAT receipts on the aforesaid higher prices.
In normal circumstances therefore that 5p cut should only be reversed as pump prices fall back.
But a look at the table shows the real reason why the OBR are projecting an increase of 23%, which would take fuel duty up to 65p/litre. Even with this increase, revenue would still only be £27.9 billion in 2027/28. Before the 5p cut, they were expected to be £28.8 billion this year. Without any increase, those 2027/28 receipts would be £22.7 billion. This shortfall is of course because of the rollout of electric cars.
I estimated last week that the government could face a shortfall of £3 billion in 2025/26 because of EVs, and the OBR indicate that this could grow to maybe £6 billion by 2027/28.
In the absence of any road pricing scheme any time soon, it would appear that other car drivers will have to pay more at the pump to subsidise EV owners.
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November 24, 2022