Saturday, March 5, 2016

Conclusive findings from a new CEBR Report commissioned by FairFuelUK clearly show the substantial shock that lower fuel prices have on average households in the UK. It shows any increase in fuel duty planned by the Chancellor in the Budget will set the economy back significantly. The current rate of duty, already the highest in the EU, is above the tax revenue maximising rate, subsequently there are few arguments that can be made for the return of a duty escalator in this Parliament. This punishing levy should instead, be cut to create more growth tax revenue to the Exchequer.


CEBR Summary  

  1. Across the UK as a whole, the cut and freeze in fuel duty has, as of January 2016, saved UK households on average £104 per year compared with a situation with RPI uprating of fuel duty, and £150 compared with a situation of RPI + 1p uprating of fuel duty.
  2. In aggregate, across all households, the savings stand at a substantial £2.9bn and £4.2bn respectively.
  3. Those in the C1 / C2 socioeconomic group have seen a 0.5% boost to their spending power compared with a situation where an RPI + 1p fuel duty escalator was in place.
  4. In aggregate, this amounts to a £2.1bn annual boost as of January 2016– the highest of all the socioeconomic groups considered.
  5. Those in the middle-earning occupational categories – lower managers, small employers, intermediate workers – have seen the greatest boosts to their spending power as a share of their income from the cut and freeze in fuel duty.
  6. If the Chancellor freezes duty for the remainder of the current parliament the average UK household would gain by £130 per annum compared with a situation in which an RPI + 1p escalator is put in place, or £81 per annum in the case of RPI uprating.
  7. This amounts to aggregate annual savings of £3.6 billion and £2.3 billion respectively by January 2020.
  8. Over the course of the current parliament the gains would stand at £8.5bn and £5.2bn respectively. C1 / C2 households would, in aggregate, bear the brunt of a fuel duty rise, facing an additional £1.8 billion in annual motoring costs by 2020 in the event of an RPI + 1p escalator being reintroduced.
  9. Over the course of the parliament the group would lose £2.6bn in the event of an RPI escalator being introduced and £4.2bn in the event of an RPI + 1p escalator.
  10. DEs would lose, over the course of the entire parliament, £0.6bn and £0.9bn respectively. 


‘The CEBR data proves that it’s the hard-grafting backbone of Britain that would be devastated by a fuel duty hike. Raise duty and the cost to workers and small businesses could be an extra £4.2 billion across this Parliament. Britain’s struggling small traders and businesses deserve and need all the help they can get.’ Quentin Willson, Lead Campaigner for FairFuelUK


‘Any thought the Chancellor has of a duplicitous cash grab from the engine room of the UK Economy by raising fuel duty, should be supplanted by inspiring our skilled workers and self-employed with a real cut in this punitive levy. By increasing their spending power, it’s been proven and the Treasury already admits, tax revenue to the Exchequer will continue to climb. So George its simple, cut duty for growth and the deficit will shrink, trust the people, you know it makes economic sense.’ Howard Cox, Founder of the FairFuelUK Campaign


The previous CEBR report for the Autumn Statement confirmed that the lower petrol and diesel prices of 2015 have raised UK GDP by 0.6%, created an extra £11.6 billion of economic activity, 121,000 jobs and boosted government tax revenues. That research also showed that raising duty on diesel or increasing VED on diesel vehicles would cost businesses and families £9.3 billion across the current Parliament. That historic research, showed that the low oil and fuel forecourt prices seen in 2015 have increased business investment, lowered production costs and improved household spending across the UK economy. Critically, the data also proves that the suspension of the government fuel duty escalator has increased tax revenues to the Exchequer by a net gain of £1.3 billion. Had the fuel escalator been in place the extra burden to the economy would have been £4.9 billion.

Fuel forms an important part of the budget of the average household. Therefore, lower fuel prices lead to significant increases in the levels of disposable income in the economy. The latest CEBR analysis suggests that freezing fuel duty over the course of the current parliament would boost household spending power by over £5bn compared with RPI uprating of fuel duty. There are two potential uses for this pool of extra income, either it can be spent or it can be saved. Both of these should work to boost demand in the economy through some combination of higher consumption or increased business investment. This should in turn boost production as the boost of over £5 billion boost disperses further through the economy through supply chains (what is known as a "multiplier effect”).


There are also additional rounds of price effects that further support the economy as the savings made by fuel-reliant industries such as the transport sector translate into lower prices for other products. Given that over 70% of the current fuel price constitutes tax in the form of vehicle duty and VAT, lower fuel prices and the boost that they deliver to the economy can also be delivered through tax policy.


The analysis in this report shows the impact that a relatively small 1p cut in duty followed by a few years of duty freezes have had on reducing pressure on household’s budgets. Given that econometric analysis conducted by CEBR suggests that the current rate of duty is already above the revenue maximising rate, there are few arguments that can be made for the return of a duty escalator in this parliament.


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