Fuel Duty Freeze - Is Raising Fuel Duty Now Too Politically Costly?

[Jozhua]

Fuel is the cheapest it has been relative to incomes for decades.

Conquer Driving did a great video on this for those interested:

It seems like Fuel Duty rises have become politically difficult. Reeves did say, this is somewhat due to the uncertainty around where prices will shift due to ongoing conflicts in the middle east and eastern Europe. However, I'm sure legislation could have accounted for this (e.g. automatically reversing the 5p cut if wholesale fuel prices spike).

I've been saying for a while now, I don't believe fuel duty is the best way to reduce emissions from a political perspective. People who can't afford EVs are going to be the last to get them, but the ones also stuck paying escalating fuel costs on their older cars.

A better way, I believe, is introducing incentives to shape the new vehicle fleet in a more sustainable manner, given it will be with us over the next 20 years or so. I would:
-Raise road tax significantly on new vehicles sold with emissions over, say 110g CO2e/km.
-Raise road tax significantly on new vehicles with a kerb weight over 1500kg, or 2000kg for an EV.
-Introduce milage based road tax for all new vehicles (based on the number of miles recorded on the Odometer between each MOT). Keep it relatively low (e.g. 2p/Mile), but make sure everyone is paying in.

For existing cars, I would probably also look to raise road tax moderately, to ensure the cost of maintaining roads is covered.

I don't know if anyone else has thoughts on this, or if they disagree. Certainly there are no options without political cost, but given how much more expensive public transport has become relative to driving, the status quo is hardly fair!

 

[Mojo]

I'm always surprised they haven't considered something along the lines of fuel duty being variable dependent on the underlying cost of the fuel. I suppose it would be quite difficult to calculate revenue long-term but it could go up automatically when the underlying cost goes down, and down when the cost goes up, effectively meaning that the price paid at the pumps would be relatively steady.

-Raise road tax significantly on new vehicles sold with emissions over, say 110g CO2e/km.

It is unfortunate that for vehicles registered after 2017 the vehicle excise duty paid by vehicle owners is no longer based upon emissions (it still is in the first year but this would be included in the price paid for the vehicle), but is instead a flat rate for all vehicles under £40k.

 

[takno]

I'm always surprised they haven't considered something along the lines of fuel duty being variable dependent on the underlying cost of the fuel. I suppose it would be quite difficult to calculate revenue long-term but it could go up automatically when the underlying cost goes down, and down when the cost goes up, effectively meaning that the price paid at the pumps would be relatively steady.

On the face of it this is a good idea, but I suspect you'd just end up with the prices being artificially ramped up by the fuel companies, with the government effectively subsidizing their profits. It might be possible to prevent that, but I'm not sure how

 

[Vespa]

The last time a government ramped up fuel tax using the punitive fuel escalator tax has resulted in haulage companies and drivers to walk out causing fuel shortages in September 2000, the government underestimated the willingness of the public to endure punitive taxes.

Fuel prices affects everything such cost of delivery, inflation, cost passed on to customers.

 

[Ken H]

There is an economist called Laffer and he noted that as you increase taxes the yield reduces. People take active avoidance measures.
fuel tax is no different. People can run their diesel cars on cooking oil if they still mis in 70-80% diesel. And cooking oil has no tax whatsoever - not even VAT. And its legal.

 

[SteveM70]

-Introduce milage based road tax for all new vehicles (based on the number of miles recorded on the Odometer between each MOT). Keep it relatively low (e.g. 2p/Mile), but make sure everyone is paying in.

A mileage based road tax is incredibly harsh on those living in rural areas where public transport provision is limited or non-existent.

Also, I’m not sure your the collection method you propose is viable - if it’s based on mileage at MoT (a) it’s a tax bill in arrears which can be problematic to collect and (b) for new cars it would be three years before any charge and then it could be hundreds and hundreds of pounds

 

[Magdalia]

The last time a government ramped up fuel tax using the punitive fuel escalator tax has resulted in haulage companies and drivers to walk out causing fuel shortages in September 2000, the government underestimated the willingness of the public to endure punitive taxes.

Raising fuel duty has been too politically costly ever since what happened in 2000.

Fuel prices affects everything such cost of delivery, inflation, cost passed on to customers.

The thing that most struck me about the 2024 budget was how inflationary it was. The Bank of England did lower the short term interest rate on Thursday but their new economic forecast expects inflation to be affected by the budget:

UK interest rates cut to 4.75% but Bank hints fewer falls to come

Interest rates were cut to 4.75% but the Bank expects inflation to creep higher after last week's Budget.

www.bbc.co.uk

UK interest rates could take longer to fall further after the Bank of England forecast that inflation will creep higher after last week's Budget.

The Bank cut interest rates to 4.75% from 5% in a move that had been widely expected.

But it indicated that while the extra spending outlined in the Budget would initially boost growth, measures such as raising the cap on bus fares and VAT on private school fees would push prices up at a faster rate.

Bank governor Andrew Bailey said rates were likely to "continue to fall gradually from here”, but cautioned they could not be cut "too quickly or by too much”.

I think that most economists have underestimated the impact of the National Insurance change on inflation. It hits businesses with lots of low wage employees the hardest, and they can't offer smaller wage rises to compensate because of the big increase in the minimum wage. The only way out is going to be to raise prices.

Sainsbury's and M&S warn Budget changes may push up prices

A number of major firms have warned over the impact of higher National Insurance costs.

www.bbc.co.uk

Shoppers could face higher prices as a growing number of big British firms warn about the cost of the National Insurance (NI) tax rises on employers announced in last week's Budget.

Sainsbury's, Marks & Spencer and BT have all hinted at price rises, while pub chain Wetherspoons said "all hospitality business" will increase prices as a result of the tax changes.

In this context adding more to inflation by increasing fuel duty is not an attractive proposition.

The other important factor to remember is that the easiest way to avoid fuel duty is to get an electric vehicle. In the future tax income from fuel duty is going to decline because of the switch to electric vehicles and governments are going to have to get used to fuel duty raising less income than in the past.

 

[miklcct]

Raising fuel duty has been too politically costly ever since what happened in 2000.


The thing that most struck me about the 2024 budget was how inflationary it was. The Bank of England did lower the short term interest rate on Thursday but their new economic forecast expects inflation to be affected by the budget:

UK interest rates cut to 4.75% but Bank hints fewer falls to come

Interest rates were cut to 4.75% but the Bank expects inflation to creep higher after last week's Budget.

www.bbc.co.uk

I think that most economists have underestimated the impact of the National Insurance change on inflation. It hits businesses with lots of low wage employees the hardest, and they can't offer smaller wage rises to compensate because of the big increase in the minimum wage. The only way out is going to be to raise prices.

Sainsbury's and M&S warn Budget changes may push up prices

A number of major firms have warned over the impact of higher National Insurance costs.

www.bbc.co.uk

In this context adding more to inflation by increasing fuel duty is not an attractive proposition.

The other important factor to remember is that the easiest way to avoid fuel duty is to get an electric vehicle. In the future tax income from fuel duty is going to decline because of the switch to electric vehicles and governments are going to have to get used to fuel duty raising less income than in the past.

Electric vehicles and charging remain luxury items, especially if you live in a place where you don't have private parking (again another luxury).

 

[Magdalia]

Electric vehicles and charging remain luxury items, especially if you live in a place where you don't have private parking (again another luxury).

That's not what the data says. The latest figures for year to October 2024 have only 60% of new sales "pure" petrol or diesel, and it is on a declining trend.

 

[philosopher]

There is an economist called Laffer and he noted that as you increase taxes the yield reduces. People take active avoidance measures.
fuel tax is no different. People can run their diesel cars on cooking oil if they still mis in 70-80% diesel. And cooking oil has no tax whatsoever - not even VAT. And its legal.

In this case, people trying to avoid paying the additional fuel duty through either buying more fuel efficient cars, switching to electric cars or driving less, would result in less carbon emissions and other pollution. Therefore, although the government may not receive that much more additional revenue, it would be beneficial to society.

 

[thejuggler]

Increasing fuel duty also increases the cost of public transport schemes designed to reduce car use as lower car use means less fuel purchased.

IIRC the loss of the fuel duty and VAT due to modal change has to be factored in to the total cost of the scheme.

 

[HSTEd]

A mileage based road tax is incredibly harsh on those living in rural areas where public transport provision is limited or non-existent.

We funcitonally have a mileage based road tax as it is!

Also, I’m not sure your the collection method you propose is viable - if it’s based on mileage at MoT (a) it’s a tax bill in arrears which can be problematic to collect and (b) for new cars it would be three years before any charge and then it could be hundreds and hundreds of pounds

Well if they don't pay they can't tax their vehicle and its illegal to drive it.

You could also provide a method for people to self report mileages between MOTs, allowing them to pay in installments if they wish.

 

[Llanigraham]

We funcitonally have a mileage based road tax as it is!

Do we?
I pay the same VED as my next door but one neighbour, but I do 12k miles plus a year and he does less than 3.

Well if they don't pay they can't tax their vehicle and its illegal to drive it.

You could also provide a method for people to self report mileages between MOTs, allowing them to pay in installments if they wish.

All of which will cost a lot of money employing people to envigillate, collect it and police it.

 

[HSTEd]

Do we?
I pay the same VED as my next door but one neighbour, but I do 12k miles plus a year and he does less than 3.

VED raises £8.3bn per year, fuel duty raises ~£24bn plus another ~£5bn in duty VAT.
Id say the resultant tax burden is largely dependent on mileage, at least to a first approximation

All of which will cost a lot of money employing people to envigillate, collect it and police it.

Well it would take a website, very similar to the ones gov.uk operates to allow people to make voluntary payments on student loans or buy back years of national insurance contributions.

All the MOT personnel are already in place, and the vehicle monitoring people already do spot checks to detect "clocking".

As far as taxes go it will be quite cheap to administer.

 

[Vespa]

VED raises £8.3bn per year, fuel duty raises ~£24bn plus another ~£5bn in duty VAT.
Id say the resultant tax burden is largely dependent on mileage, at least to a first approximation

Well it would take a website, very similar to the ones gov.uk operates to allow people to make voluntary payments on student loans or buy back years of national insurance contributions.

All the MOT personnel are already in place, and the vehicle monitoring people already do spot checks to detect "clocking".

As far as taxes go it will be quite cheap to administer.

You're asking MOT staff to act as tax collectors for the government, they're paid to be mechanics not inland revenue enforcement, that would go down a storm as it's the equivalent of poll tax and we know what happened the last it was tried.

 

[SteveM70]

Well it would take a website, very similar to the ones gov.uk operates to allow people to make voluntary payments on student loans or buy back years of national insurance contributions.

All the MOT personnel are already in place, and the vehicle monitoring people already do spot checks to detect "clocking".

As far as taxes go it will be quite cheap to administer.

So effectively you’re requiring all car owners to join in a form of self assessment?

Another question - what happens if I sell my car when it’s 2 years and 11 months old? Does your online system require me to declare the mileage and pay up, or does the new owner take the hit when it gets to MoT time?

It feels immensely impractical to me

 

[cactustwirly]

What about tax reductions for business miles?
If you're doing a lot of miles for business use surely there has to be a rebate for road pricing?

 

[takno]

So effectively you’re requiring all car owners to join in a form of self assessment?

Another question - what happens if I sell my car when it’s 2 years and 11 months old? Does your online system require me to declare the mileage and pay up, or does the new owner take the hit when it gets to MoT time?

It feels immensely impractical to me

It seems fairly obvious here that the statutory declarations sent to the DVLA on change of ownership would contain the mileage, and the MOT certificate would contain the mileage. The tax being raised initially will be low enough that there's no real incentive to commit serious fraud over it.

What about tax reductions for business miles?
If you're doing a lot of miles for business use surely there has to be a rebate for road pricing?

Why would you give anybody a rebate for business miles? Business miles cause exactly the same amount of damage to the roads and the environment.

 

[Tazi Hupefi]

The government will just wait until the oil price drops sufficiently enough for them to increase the taxes, but the motorist doesn't see any difference in price overall.

Essentially not passing the cost of the oil price drop on to the motorist, but not increasing the cost of filling your tank either.

That probably happens when Russia/Ukraine is resolved in some way and Gaza/Israel cools down - a lot will depend on Trump.

Failing that, I'd imagine they'll look at VAT on domestic electricity, currently 5% - and increase it - no idea how technologically possible it would be for smart meters to identify whether a car is being charged up - if so.

 

[Nym]

What about tax reductions for business miles?
If you're doing a lot of miles for business use surely there has to be a rebate for road pricing?

Doubt it,
That would be included in the 45p/mile for 'business mileage' that's been the going rate for far too many years now, so it would just be lumped into that if road pricing became a thing.

 

[takno]

The government will just wait until the oil price drops sufficiently enough for them to increase the taxes, but the motorist doesn't see any difference in price overall.

Essentially not passing the cost of the oil price drop on to the motorist, but not increasing the cost of filling your tank either.

That probably happens when Russia/Ukraine is resolved in some way and Gaza/Israel cools down - a lot will depend on Trump.

Failing that, I'd imagine they'll look at VAT on domestic electricity, currently 5% - and increase it - no idea how technologically possible it would be for smart meters to identify whether a car is being charged up - if so.

VAT on domestic energy is surely politically even harder. It's been traditional to blame its existence on the EU and to present the low 5% as a victory against meddling Eurocrats. If we put it up now it will just be another missed Brexit bonus.

In terms of whether it's charging a car up, not only would it be impossible to tell, but there's increasing movement towards using car batteries as a power source for the home during peaks, so the power going into the car might never be used for driving anyway

 

[Ted633]

So effectively you’re requiring all car owners to join in a form of self assessment?

Another question - what happens if I sell my car when it’s 2 years and 11 months old? Does your online system require me to declare the mileage and pay up, or does the new owner take the hit when it gets to MoT time?

It feels immensely impractical to me

Not so much now with smart meters, but you'd always do the same when you moved house (granted not as regular occurrence as a new car). Recording & reporting your meter reading when you moved in / out to ensure you weren't paying someone else's energy bills. Something that caused me grief as the previous occupiers of my home hadn't paid their bill for 6 months!

 

[Bletchleyite]

What about tax reductions for business miles?
If you're doing a lot of miles for business use surely there has to be a rebate for road pricing?

There isn't for fuel tax so why would there be for road pricing?

 

[HSTEd]

So effectively you’re requiring all car owners to join in a form of self assessment?

If they wish to pay other than at the MOT, yes.

Another question - what happens if I sell my car when it’s 2 years and 11 months old? Does your online system require me to declare the mileage and pay up, or does the new owner take the hit when it gets to MoT time?

Well I think you would be expected to declare how many outstanding miles were on the vehicle, just as people declare how many months MOT a vehicle has remaining today!
That is going to be the fist question someone buying a car is going to ask, after all.

This would then have an impact on the price of the vehicle, just as months remaining of MOT does.

Alternatively, put the mileage on the change of ownership paperwork, as suggested up thread.

 

[corfield]

A flat rate on mileage seems highly unlikely as where would you set it without causing (1) millions of angry people who pay more than they do now and/or (2) lose significant revenue vs now.

The more you try to appease (1) by lowering the rate, the worse (2) is and vica versa.

Add in all the EV people who have paid more for their vehs with the promise of cheaper running costs and now get hit too.

“Courageous” as Sir Hunphrey said.

Try to apply a variable rate and you have an administrative nightmare that is impossible.


Of course the biggest problem with this is that whilst fuel tax is largely hidden from motorists since they only “see” the pump price and most will have no idea how much is tax (I asked people at work and they thought it was like VAT, somewhere 15-20% - openly staggered and angry when realised it was more like 50%) - a flat direct tax you have to pay as a lump sum is a vastly more visible tax.

Is there any other tax where we pay 50%?

Politically the semi stealthy gouging of motorists for decades is going to be very clear via a mileage tax - and opposition parties, especially insurgent ones, will have a field day with it. Not least the regressive aspect of directly taking c.£1000+ off even the poorest in society.

In terms of collection, a MoT declaration seems easiest - but the difficult bit is how you pay. A fuel tax is collected in advance but you know you’ll use it all.

A mileage tax is inevitably in arrears. That’s a totally different arrangement and more akin to self-assessment.

Perhaps like utility bills you’ll set up a direct debit on an estimate, and correct that as and when. Smart meters in cars may be able to automate the process. But its all more noise and mud to be thrown in the political bun fight.

Overall the direction (expensive EVs, expensive road pricing) will price the poorest third off the roads whilst squeezing the middle third even harder. That’s likely to have significant political impacts in terms of support for who implements this and who promises to rip it up.

 

[HSTEd]

A flat rate on mileage seems highly unlikely as where would you set it without causing (1) millions of angry people who pay more than they do now and/or (2) lose significant revenue vs now.

The more you try to appease (1) by lowering the rate, the worse (2) is and vica versa.

Add in all the EV people who have paid more for their vehs with the promise of cheaper running costs and now get hit too.

“Courageous” as Sir Hunphrey said.

Will it be more courageous than £25-30bn/yr of spending costs on various photogenic causes because the Government does nothing and fuel duty revenue collapses inside 20 years?
30% of new cars are already plug-in and thus able to run with no taxed fuel.

In terms of collection, a MoT declaration seems easiest - but the difficult bit is how you pay. A fuel tax is collected in advance but you know you’ll use it all.

A mileage tax is inevitably in arrears. That’s a totally different arrangement and more akin to self-assessment.

Is it really self assesment?
The state's agent (the MoT test personnel) are the ones who are assessing your tax liability.
Whilst we would likely offer a self declaration system to allow people to spread the cost, ultimately there is no method to use self assessment to escape your liability beyond your next MoT inspection.

And if you fail to present your vehicle for an MoT you will be unable to insure it or drive it long term.

Overall the direction (expensive EVs, expensive road pricing) will price the poorest third off the roads whilst squeezing the middle third even harder. That’s likely to have significant political impacts in terms of support for who implements this and who promises to rip it up.

The road pricing is not likely to be any more expensive than it is now.
If you wanted you could band cars in a manner akin to vehicle excise duty and charge them different per mile rates. That would provide the incentive that fuel duty provides for smaller, lighter cars.

I'm far from convinced that electric cars will really price people off the road. With fewer moving parts EVs are unlikely to die quite so easily as internal combustion cars - as the market matures we would expect a lot of high mileage EVs to start piling up in the second hand market.
Whilst their battery might have lost a significant amount of their initial capacity, they will still suffice for many people's driving needs. There are several sub-£5,000 early model Nissan Leafs on autotrader already, with some below £3,000.

 

[Nym]

Is there any other tax where we pay 50%?

Additional Rate income tax is 45% in England and Wales, and 48% in Scotland. It's also an affective rate >45% in England immediately after the rate applying as it removes Personal Allowance.

Will it be more courageous than £25-30bn/yr of spending costs on various photogenic causes because the Government does nothing and fuel duty revenue collapses inside 20 years?
30% of new cars are already plug-in and thus able to run with no taxed fuel.

Except electricity has VAT charged.

 

[aavm]

Current petrol price is 60p (before tax), 135p (with tax). How high do you want the tax to be? It's way too high already. It demonstrates how unviable public transport is without such high taxes on the competition. To me, the solution is making trains much more efficient, not taxing people until they have no choice.

 

[66701GBRF]

There *might* be a need for a new system in the future but as it stands at the moment and the next few years we already have a mileage based tax called Duty and VAT. The more fuel you use the more fuel you pay for and thus the more tax you pay.

With electric vehicles you could have some sort of cost based on the mileage. You could have it at the MOT (mileage is already recorded) and dictate you must have it recorded every year even if MOT is not due. Or you could leave it up to owners to record their milage every month like many do with gas and electricity meter readings.

 

[Ken H]

Current petrol price is 60p (before tax), 135p (with tax). How high do you want the tax to be? It's way too high already. It demonstrates how unviable public transport is without such high taxes on the competition. To me, the solution is making trains much more efficient, not taxing people until they have no choice.

We went out for tea and cake yesterday. We decided to try a new place between Addingham and Ilkley. We live near Settle but not in it. The journey was 28 miles each way. Google maps reckons 49 minutes.
Or I can do bus/train. Over a mile walk to a bus or train. 4 options in the afternoon. 1 taking over 2 hours. Do I really want to go via steeton???

Last tuesday. Had an investigation at a hospital 22 miles away. Had to be there at 7. Google maps had me travelling late evening. No suggestions as to what I did overnight at the hospital. Could not drive as in and out in a day with general anaesthetic. Taxi cost me £50. Son came up from Derbyshire to be with his mum and to get me home in the afternoon.

Today I will drive 2.2 miles to visit the supermarket. We will get some heavy stuff (milk for a start). So need the car

Oh. And the missus doesnt walk that well.

These are normal car use journeys. Without a car they become impossible or an endurance. Thats why a mileage based car tax would probably bring down a government.


BTW the hosp visit didnt find anything nasty.