4 ÓCentre for Economics and Business Research 1. Introduction and summary 1.1. Introduction This is a report on the economic impact of the proposed March 2023 rise on the rates of fuel duty for petrol and diesel. The study is based on an earlier study carried out by Cebr in November 20201 looking at the impact of raising fuel duty by 2p. Where appropriate and possible the data used in the earlier study has been fully updated. There are three elements to the study. First it looks at the extent to which fuel duty changes are passed through to the consumer. Then it looks the distributional impact of such changes. Finally it considers the overall economic impact and the effects on GDP, employment and unemployment and on net revenue raised. 1.2. Summary The key points of the study are: · Any rise in fuel duty would generate much less net revenue than OBR expects because of reduced usage, shifting to other areas of economic activity that are less highly taxed and because of losses of tax revenue from the negative impact on the economy. · Our calculations suggest that a 12p rise in fuel duty would generate £1,500-2,800 millions of annual revenue initially falling to about a quarter of that within 20 years. · A 23% rise in fuel duty would create economic damage, cutting GDP eventually by about 1% and reducing employment by about 31,000 jobs. · It would add 2.3% to the CPI. · Despite the recent freeze and the 5p cut in fuel duty March, UK diesel taxes are the highest in any major European 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 more than twice as much on fuel as the richer groups. · Increasingly the use of road fuel in London is falling as car usage falls. As a result, a rise in fuel duty is very much a tax imposed by London on the regions. Londoners spend only about a third 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 restrictions, increased traffic jams and increased charges and enforcement penalties as a result of recent government actions. The effects of a rise in fuel duty will be hitting sectors that already feel that they have faced an excessive increase in the burdens on them that result from government policy. The annual cost of a 23% rise in fuel duty to a van driver is £221-970. · With growth in the online sector, vans are critical to the economy. The increase in the burdens on van drivers, like those on other road users, has already started to impact on their willingness to service clients. If this continues a critical link in the service chain could break. 1 The Economic Consequences of Raising Fuel Duty by 2p - A Cebr report for FairFuelUK and the RHA November 2020