Much is being made by FairFuelUK (and others) of the link between lower fuel duty rates and boosts to the economy. Indeed FairFuelUK have commissioned their own research into the subject which they have put before ministers.
Of course ministers – particularly those at the Treasury – are already more than familiar with this link. It is a mantra that has been repeated several times by the HMRC in the Fuel Duty Rates briefing that gets published after each fiscal statement. This, for example, was taken from the note which followed the 2011 Budget when there was a cut to fuel duty:
“Fuel is a major business input for the UK economy. The reduction in duty will reduce costs for business; as such it is expected that this measure will have a positive impact on GDP.”
The sharp-eyed will spot something else the note says:
“As a result of this lower price, fuel consumption and the number of miles driven will increase and the incentive to improve fuel efficiency will be weaker.”
The last point of that sentence sounds worrying. But is it? For the consumer rising fuel costs will lead to less driving, smoother driving and, in time, a move to more fuel efficient cars. There is no denying there is a link between fuel prices and usage, though in the short term this is inelastic. However, doesn’t the drive to green the car fleet come more from legally binding carbon emission targets (backed up by a sliding scale of purchase taxes dependent on a vehicle’s carbon credentials) than pump prices?
The way the industry has reacted to the challenge of making cars less polluting is encouraging and there is every reason to think the vehicle fleet can be effectively cleaned up while still maintaining mobility. Manufacturers are well on the way to meeting the 2015 emissions target of 130gCO2/km for the average new car. Indeed several – including Audi, BMW, Toyota and Volvo – have met it already (the cynical might say the target was actually too easily achievable and should have been more challenging). This has been accompanied by a circa 30% improvement in fuel efficiency over the past decade. Looking further ahead, the target for 2020 is 95gCO2/km.
Keeping fuel affordable clearly risks adding to congestion and won’t assist the Chancellor as he attempts to balance the books as hydro-carbon tax income falls – road user charging anyone? – but as George Osborne’s own conclusions show, there are very good reasons for the economy in keeping the lid on the rate of fuel duty.