6 ÓCentre for Economics and Business Research 2. Background 2.1. Introduction In their November 2022 OBR Economic and Fiscal Outlook, the OBR (Office for Budget Responsibility) points out that it has taken into account ‘the planned 23 per cent increase in the fuel duty rate in late-March 2023, which adds £5.7 billon to receipts next year. This would be a record cash increase, and the first time any Government has raised fuel duty rates in cash terms since 1 January 2011. It is expected to raise the price of petrol and diesel by around 12 pence a litre’2. This report examines the distributional and economic impact of this proposed rise. Excise duty is charged on most hydrocarbon oils in the UK. The two main categories of road fuel – ultra-low sulphur petrol and ultra-low sulphur diesel – are charged duty at 52.95p per litre with an additional 20% VAT charged on top. According to the RAC Foundation, when VAT is included, the total fuel tax represented 49.3% of the final pump price for petrol, and 45.0% of the final pump price for diesel (during the week beginning Nov 21 2022)3. Fuel duties alone are forecast to raise £26.2 billions in 2021/22 4 . This excludes the 20% VAT that is charged on the duty which raises this by a further fifth. The Institute for Fiscal Studies looked at the Government’s options for taxing motoring in their Green Budget, published in October 2019 5 ; as part of this, the authors considered the distributional impact of fuel duties, finding that duties paid on households’ fuel purchases (both duty and VAT) ‘are, on average, roughly proportional to household spending, accounting for between 2% and 3% of the non-housing budget for all income groups’. The report added: ‘Among car owners, fuel duties take up a larger share of poorer households’ budgets. But since lower-income households are much less likely to own a car in the first place (in 2015 only half of those in the lowest income decile owned a car, compared with over 90% in the highest income decile), the average budget share across all households is broadly constant over the income distribution (though slightly lower for the poorest tenth and the richest tenth). ‘That said, “the burden of fuel duties varies widely within income groups”: ‘Right across the income distribution, around 4–5% of households find fuel duties (and VAT on the duties) consuming more than a tenth of their budget, and it is for these people that rates of fuel duties are a particularly sensitive issue … 2https://obr.uk/docs/dlm_uploads/CCS0822661240-002_SECURE_OBR_EFO_November_2022_WEB_ACCESSIBLE.pdf 3https://www.racfoundation.org/data/taxation-as-percentage-of-pump-price-data-page 4 https://obr.uk/forecasts-in-depth/tax-by-tax-spend-by-spend/fuel-duties/ 5 https://www.ifs.org.uk/uploads/Green-Budget-2019-Chapter-9-A-roadmap-for-motoring-taxation-2.pdf