CEBR Fuel Duty Impact - Nov 2020

9 © Centre for Economics and Business Research 3. Distributional impact of a 2p rise in fuel duty 3.1. Introduction This section analyses the distributional impact of a 2p rise in fuel duty looking first at the impact of different income groups, then at the impact on van users and finally at the impact on HGV users. 3.2. The scale of the increase The analysis is based on family spending data for 2018/19 4 , the most recent available, except where otherwise stated. The average price of petrol and diesel per litre during the 2018/19 period were respectively 124.95p and 131.05p 5 . It analyses the impact of adding 2p to the rate of fuel duty in existence on 12 October 2020 when the price of petrol and diesel per litre respectively were 113.09p and 118.05p; implying pre duty and pre-tax prices of 36.37p and 40.43p respectively. The rate of duty was 57.95p per litre for both petrol and diesel and both were subject to 20% VAT for the price including duty. We therefore calculate that a 2p rise in the rate of duty would raise the prices of both petrol and diesel ex ante (before taking account of market conditions) by 2.4p a litre or 2.12% for petrol and 2.03% for diesel. The impact is not spread evenly between households. This is because households at different income levels spend different proportions of their incomes on fuel. Table 2 shows that the share of gross income spent on fuel rises with income decile until the middle- income groups and then falls back. But this is misleading – many in the lower income groups do not buy fuel. For those who have access to a vehicle and who therefore have to buy fuel , Table 2 s hows that the proportion of their gross income spent on fuel peaks at 8.17% for the lowest income decile and falls to 4.21% for the highest income decline. In other words, the poorest 10% who use vehicles spend twice as much of their income on fuel as the richest 10%. This means that a rise in fuel duty is regressive. 4 https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/expenditure/bulletins/familyspendingintheuk/ april2018tomarch2019#:~:text=Average%20weekly%20household%20spending%20in,)%2C%20after%20adjusting%20for%20inflation Downloaded 19 October 2020 5 https://www.gov.uk/government/statistical-data-sets/oil-and-petroleum-products-weekly-statistics released 1 3 October2020, Downloaded 19 October 2020