Fuel duty cut is good for the economy.

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The Freight Transport Association (FTA) applauded the Chancellor’s recognition that cutting fuel duty does have a positive impact for all – something that the Association has been telling government for a very long time.

According to a Treasury Report issued today, the cost of freezing fuel duty could be offset by the economic boost it causes.

FTA has previously called on the Chancellor on numerous occasions to consider the economic benefits that could be delivered by further development of the government’s approach to fuel duty and has said today that it is pleased that they have ‘caught-up’ with the impact it will have. The Association had estimated that every penny of fuel duty costs commercial vehicle operators £116 million a year, and stated that reducing road fuel duty would ease cost pressure on businesses operating commercial vehicles and stimulate economic growth.

The Treasury Report – ‘Analysis of the dynamic effects of fuel duty reduction’ was released by the Chancellor and says that halting the tax rises will boost the economy by up to £7.5bn over 20 years, as extra activity would mean that the government would recover around half of the initial lost revenue.

Theo de Pencier, FTA Chief Executive said: “FTA is pleased that the Treasury has accepted our key arguments that fuel duty can be cut without harming the economy. From the conclusions in this report today, it does appear as though the Chancellor has caught-up with our findings, and there is now every chance for him to go further and boost growth by cutting 3 pence per litre from current rates.”

The case for a reduction in fuel duty founded by the consequent increase in spending that it stimulates was made by the FTA backed scheme FairFuelUK last year when it commissioned a study by the National Institute for Economic and Social Research that showed that a 3 pence per litre reduction in fuel duty would be offset by higher spending by households and businesses.

British rates of fuel duty remain the highest in Europe. The case for them being brought in line is now overwhelming.

FTA figures show that every penny of fuel duty costs commercial vehicle operators £116 million a year; for every £1 spent on fuel around 60p is paid to the Treasury; and a 3ppl cut would save around £350 million a year for the transport industry.

Mr Osborne has said that that this approach could be a “quiet revolution” in tax debate, and that he wants the government to produce more research into the broader impact of tax reductions, having already published a study suggesting corporation tax cuts would benefit the economy.

The Treasury used a method called “dynamic modelling” to calculate the wider economic effects of keeping fuel duty down. Its conclusion was that the policy would increase gross domestic product by up to 0.5% – about £7.5bn in today’s prices.

As a founding backer of FairFuelUK, FTA has helped to stop £30 billion in tax hikes for road users, and has been campaigned for three years for its members, and the transport and logistics industry as a whole.

Christopher Macgowan
@chrismacgowan

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