CEBR Fuel Duty Impact - Nov 2020

4 © Centre for Economics and Business Research 1. Introduction and summary 1.1. Introduction This is a report on the economic impact of imposing a 2p rise on the rates of fuel duty for petrol and diesel. There are two elements to the study. First it looks at the distributional impact. Then it considers the overall economic impact and the effects on GDP, employment and unemployment and on net revenue raised. 1.2. Distributional impact The report looks first at the impact on household budgets by income decile. Then it looks at the impact by region. These calculations are based on the assumption that behaviour does not change. The report then looks at the options for change in behaviour. First it looks at the potential access to electric vehicles. Then it considers public transport and walking. Finally, it looks at disability. The other aspect of this part of the report looks at commercial vehicles. The impact on the costs of running vans (Light Commercial Vehicles) and lorries (HGVs) is measured. Under current technology there are few options for technical change. 1.3. Economic impact The second phase of this analysis examines the total economic impact and how much net tax receipts will be generated after allowing for increasing take up of more fuel-efficient vehicles over time and after allowing for knock on effects. The final section of this part of the report looks at the longevity of any revenue raised. It considers Cebr and OBR forecasts and points out that any revenue that might be raised from a higher rate of fuel duty would only help public finances in the short term because of technological change. Since the crisis in public finances is long term, it is worth noting that the likely long-term beneficial impact of any revenue that might be raised will do little to help the long-term budget deficit. 1.4. Summary The key points of this phase of the study are: • Any rise in fuel duty would generate very little revenue. Our calculations suggest that at most a 2p rise in fuel duty would generate £250-470 millions initially falling to £50-90 millions within 20 years. • A rise in fuel duty would create economic damage, cutting GDP by about £600 million and reducing employment by about 8,000 jobs. It would add 0.6% to the CPI. • Despite the recent freeze, UK diesel taxes are the highest in any major economy while UK petrol prices are amongst the highest. • A rise in fuel duty would hit the poorest motorists most. Motorists in the poorest 10% of the population spend proportionately twice as much on fuel as the richer groups. • A rise in fuel duty is a tax imposed by London on the regions. Londoners spend only half as much on fuel as the rest of the UK. • The impact of any rise in fuel duty will be cumulative. Essential vehicle users, especially LGV and HGV drivers, have already been hit recently by closed roads, closed lanes, speed