Fuel Tax in the UK
Duty paid on petrol and diesel in the UK is a fuel tax that has been a key part of UK budget policy for generations. It is the biggest element in the price we pay at the pumps, with 57.95p of every litre of petrol and diesel going to the tax man.
For several years, the cost of fuel increased with or significantly above inflation, meaning the cost of motoring became more and more prohibitive for businesses and individuals. The fuel duty escalator was introduced in 1993 in order to increase fuel tax by 3 percent above inflation. Gordon Brown increased this figure to 6% above inflation, bringing the tax portion of a litre of fuel to over 80%.
However, the current 57.95p amount introduced in March 2011 has not been increased, with 2017’s planned rise cancelled by new Chancellor Philip Hammond in his recent Autumn Statement. As inflation has averaged out at 2.5% in the last 6 years, the cost of filling up a vehicle has effectively fallen in real terms.
Benefits of Low Fuel Tax
Whilst the cost at the pumps won’t necessarily be reduced per se, the benefits of a fuel duty freeze can reach far and wide. The most obvious benefit is that the true cost of driving is reduced. However, with the amount of lorries on British roads, this must have had a positive effect on logistics and recruitment.
Imagine if fuel prices had continued to rise by 7% since 2011. Would logistics providers, delivery companies and other industries be able to justify job creation? It is thought that the net result of this more generous approach to fuel taxation is worth more to the economy as a whole than the extra revenues that would have come from the fuel duty escalator. More vehicles on the road means more drivers. More drivers means more people employed to drive for a living. More jobs means a stable and healthy economy with good revenues from income tax.