CEBR Fuel Duty Impact - Nov 2020

18 © Centre for Economics and Business Research The results of its simulations are shown i n Figure 3. A 3p cut in duty is modelled to boost GDP by 0.11%, employment by 36,000 and to cut government revenue net by £186 billion. Figure 3 National Institute modelling of 3p cut in fuel duty 4.4. Treasury model using DGM 20 This section explains how the Treasury’s CGE model has been used to simulate the effects of the reductions in the rate of fuel duty. It summarises the results in terms of increased economic activity (output, investment, wages, and consumption) and the extent to which this leads to the costs of the tax reduction being recovered. The report from which the calculations are made assumes a 20% reduction in fuel duty. The impact is scaled to show that of a 2p rise in fuel duty. Table 6 below summarises the results, which are expressed as percentage decreases against the baseline except for the tax recovery rate which is in terms of the percentage of the static cost that is recovered. Following the 3.3 per cent real terms rise in fuel duty, the CGE model suggests that GDP will be 0.01 per cent lower than the baseline after 20 years (in fact the early effect is fairly similar in scale). The model also predicts that about 50 per cent of the static cost of the fuel duty reduction will be lost in lost tax revenue from reduced economic activity . The modelling suggests that GDP might be £300 million per annum lower and that the net amount of tax revenue gained might be only £470 million out of a gross £950 million. 20 This is calibrated from the paper from the Treasury and HMRC which describes the impact of a 20% reduction in fuel duty. HMRC and HM Treasury Analysis of the dynamic effects of fuel duty reductions Publication date: April 2014