7 ÓCentre for Economics and Business Research ‘A 2015 YouGov survey (YouGov / Times Red Box Survey, March 2015) found that just over half of respondents thought fuel duties were unfair; only inheritance tax received a more unfavourable response. It is particularly striking when contrasted with tobacco duties, which are highly regressive and which many economists would bracket with fuel duties as ‘corrective taxes’ designed to discourage harmful behaviour, but which were considered the fairest of the taxes listed. ‘Evidently the harms that motoring causes do not make people think of fuel duties as a legitimate ‘sin tax’ like alcohol or tobacco duties. One reason for this may be that many people feel they have little option but to drive – it may be their only way to get to work, for example – and resent being penalised for something they can do nothing about.’ The IFS in this commentary makes the elementary economic mistake of justifying additional taxes on motoring through the impact of motoring on congestion. Congestion is actually to use an economic technicality a ‘club effect’, a cost imposed by members of a group on the other members of the group. The standard economics for correcting the externality of a club effect is to impose taxes at the margin but repay them to the other members of the club through some other form of redistribution, not to charge them and use them to finance other items of public expenditure. Otherwise, the more the members of the ‘club’ are inconvenienced the more tax they should pay which is clearly absurd. As was made clear in the November 2022 Autumn Statement, the UK government’s fiscal position is being hit by both a shortage of revenue and by escalating government spending. The projected deficit for 2022/23 is £177 billion; that for 2023/24 £140 billion (including the estimated £5.7 billions yielded by the projected 23% rise in fuel duties). Both are extraordinarily large and would probably not be financeable were other governments not also following lax fiscal policies. But at the same time, despite the 5p reduction, UK motorists face relatively high fuel duties compared with most other countries. The latest data in Table 1 shows that petrol taxes are well above the European average and higher than in comparable countries like France, Germany and Italy. Diesel taxes in the UK remain the highest in Europe.
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