£7.5bn boost from fuel tax freeze

Halting fuel duty rises will boost the economy by up to £7.5 billion over 20 years, according to the Treasury.

Fuel tax curbs will boost the economy by £7.5bn over 20 years, the Government says
Fuel tax curbs will boost the economy by £7.5bn over 20 years, the Government says

The Government has stopped planned increases, including one due to come in this month, which means duty is around 20% lower than it would have been, it said .

But around half of the initial lost revenue to the Exchequer as a result of the changes will be generated through the increased growth, its analysis found.

The research, known as dynamic modelling, plots out the expected impact of policy on the long-term growth of the British economy and shows that over the next two decades it increases gross domestic product by up to 0.5% - around £7.5 in today's prices and around £300 per ho usehold.

Since 2011 the fuel duty escalator has been axed with four planned increases scrapped, while one penny per litre was cut in March 2011.

"Were it not for the Government's actions, fuel duty would be going up this month to around 72p per litre," the Treasury said.

"Instead, there will be no rise this April, and thanks to the Government's actions over the parliament, fuel duty is approximately 20% lower than it otherwise would have been, at around 58p per litre."

The Treasury said the figures were calculated using a "state of the art model" that computes the wider "dynamic" impact to the whole economy of tax changes rather than just the static cost to the exchequer.

RAC spokesman Simon Williams said: "It's good to see a Government report saying that freezing fuel duty has had a positive effect on the economy. Along with FairFuelUK we have been campaigning for a cut to reverse this punitive charge which is effectively a tax on virtually every British business that uses vehicles as well as the vast majority of people who rely on vehicles for work and everyday life.

"Well before this Treasury report, the economic benefits of a fuel duty cut have been clearly demonstrated in reports produced for FairFuelUK by the Centre for Economics and Business Research as well as the National Institute of Economic and Social Research.

"This is why we have been calling for a radical and much-needed 3p-a-litre cut in fuel duty as we believe this would do far more good for the economy than simply freezing it."

TaxPayers' Alliance chief executive Jonathan Isaby said: "It's great news that the Government have extended their use of dynamic modelling to the cancelled fuel duty rises.

"When chancellors let people keep more of their own money, they find that the impact on government finances and the wider economy is always better than expected. The Government should set out a plan to extend their dynamic analysis to all fiscal policy decisions."