So that’s that then.
After a cut in fuel duty in the March 2011 Budget and the postponement of the January 2012 3p rise until August this year, it was always going to be hard to convince the Chancellor to once again tinker with fuel duty rates even if there are pressing and convincing reasons to do so, as George Osborne himself appeared to recognise today.
What was surprising about Mr Osborne’s Budget speech was that contained the rationale for amending the way motorists are taxed. Referring to the work of the 18th Century economist Adam Smith, Mr Osborne said that a tax system needs to be four things: fair, predictable, simple and supportive of work. Yet it is quite easy to argue that fuel duty is no more than one of those things.
The premise behind fuel duty has never been entirely clear: varyingly it has been described as an environmental tax, general revenue raiser and method of covering the externalities drivers impose on others (who are often other road users). Nor have the changes in fuel duty rates over many years been smooth or consistent. Fuel duty is also a regressive tax, hitting the poor harder than the rich.
Therefore the single area where fuel duty might fit the bill under Smith’s criteria is the ease by which it is collected.
Mr Osborne did recognise that drivers are likely to be hit by things beyond his control. Early in his speech he said a risk to the economy identified by the Office of Budget Responsibility “is a ‘further spike in oil prices’, and there is no doubt that the high oil price – driven both by real demand and the Iranian situation – is of great concern across the world.”
While it is a dangerous game to predict the future from the past, it is hard to see oil prices falling significantly, which does at least mean that rises in fuel duty – at least during the life of this Parliament – will be inflation only. In the unlikely event that oil prices drop below $75 a barrel for a sustained period of time then the Treasury will raise duty rates by inflation plus one percent per annum.
Many of the nation’s 34 million drivers will be feeling disappointed tonight that the price of fuel remains were it is with the prospect that it will jump markedly later this year. The cost of motoring is a real drag on the finances of the majority of households. In the absence of more, effectively arbitrary and politically driven postponements in duty rate rises, perhaps the Chancellor will at least turn his attention to making motoring taxation more closely fit the principles outlined by Adam Smith more than two hundred years ago. That would be progress.