23 ÓCentre for Economics and Business Research 5. Economic Impact 5.1. Introduction This section looks at Cebr and other modelling to estimate the impact of a 12p rise in fuel duty on the economy looking at GDP, employment, inflation and on tax recovery – the proportion of the tax levied that is actually raised. 5.2. Cebr modelling Cebr in September 2018 estimated the impact of the freeze in fuel duty28. The report calculated by how much prices were lower than they might have been had fuel duty risen by 24%. ‘Using the counterfactual fuel duty increases, resulting in 24% higher fuel prices in 2018, the cumulative nominal impact on inflation measures is as follows: o CPI – 6.66% (overall transmission of 27.7%) o PPI Output – 5.22% (overall transmission of 21.7%) o PPI Input – 20.33% (overall transmission 84.7%) o SPPI Road Freights – 5.14% (overall transmission of 21.4%) This can be used to scale the impact on inflation of a 12p rise in fuel duty. The amounts will obviously be lower since the increase is 2.1% compared with 24%. The estimated effects are shown below: o CPI – 3.24% (overall transmission of 27.7%) o PPI Output – 2.76% (overall transmission of 21.7%) o PPI Input – 10.18% (overall transmission 84.7%) o SPPI Road Freights – 2.70% (overall transmission of 21.4%) Cebr also reported for FairFuelUK in 2012 looking at the economic impact at that time29. The report concluded: The figure shows that for a 1 penny reduction in fuel duty, the expected increase in GDP is 0.35 per cent…By way of comparison, a 1 pence reduction would generate 161 thousand new jobs with little net impact on the fiscal position. 5.3. Impact on CPI using CPI weights The CPI weight for 2022 for road fuels (petrol, diesel and lubricants) is 31 parts per thousand30. A 12p rise in the retail price would raise fuel prices by 7.3%. This would raise the CPI by 2.3%. This number is lower than the 3.24% calculation above and reflects the higher prices of other items 28 The impact of the fuel duty freeze on UK prices A Cebr report for FairFuelUK September 2018 29 The impact on the UK economy of a reduction in fuel duty Cebr report for FairFuelUK 2012 30 https://www.ons.gov.uk/economy/inflationandpriceindices/datasets/consumerpriceinflationupdatingweightsannexatablesw1tow3
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