Fuel tax has been frozen for the 13th consecutive year. When will the government abandon this regressive, environmentally damaging policy?
Spring budget sees chancellor freeze fuel tax rates for 13 yearsday For the year in a row, the decision has the support of both major political parties. But the decision’s popularity among politicians has not mirrored its popularity with civil society.policy is people usually think that Due to economic inefficiency and destroy the environment.
Freezing fuel duty at the level introduced last year (a reduction of 5p) means how much less their disposable income drivers actually spend on fuel when inflation and wage growth are taken into account. The end result of such a freeze could be increased fuel consumption by the public, which in turn increases polluting carbon emissions.
At NEF, our analysis found that a likely increase in household fuel consumption over the next year would result in an additional 34,000 to 3.9 million tonnes of carbon dioxide being released into the atmosphere. This equates to adding 2 to 2.3 million cars a year on UK roads. Compared to 2021, road transport emissions will increase by 3.4% to 3.9%.
One comparison in particular revealed the inconsistency of this carbon announcement. document Published at the same time as the spring budget, while investing £6bn in the consumption of high-carbon fuels, the government received almost the exact same amount – £6bn – from its carbon tax scheme, UK Emissions Trading Scheme. We tax carbon with one hand and discount it with the other.
To risk anomalous increases in emissions during the climate emergency, there must be a compelling economic case for the policy. but it is not the truth. We found that of the £3.4bn that households would save in fuel tax over the coming year, £2.2bn (or 64%) would be accumulated by households in the top 50% of equivalent incomes, while only £1.2bn (36%) would accrue to the second half. That’s almost two-thirds of what the wealthiest households save, while the poorest save just over a third.
In his speech, the chancellor said individual households would benefit by £100, but this was not the case for the bottom 40% of households. In fact, households in the bottom 10% of income will only benefit £55, and of course any home without a car (which is more common among lower income groups) will see no direct benefit. Meanwhile, the top 10% of households will save £155.
Of course, businesses do save money, too, and to some extent this may trickle down to price cuts.But if the recent outbreak of‘Greedy inflation’ Anything goes, and many businesses won’t pass this savings on to consumers.We’ve seen how some retailers at gas stations not fully passed About last year’s fuel tax cuts. In any case, the question to be addressed is not whether support should be provided to households to help cope with higher prices. The question is: what is the most efficient mechanism for doing this? For example, if the £6bn from the fuel tax freeze were redirected to a one-off fixed cash payment to each household, each household would benefit by £220. And such a policy would be more distributively progressive, as low-income households would receive a disproportionately higher income.
Alternatively, we may seek other forms of transport-related support. While gasoline costs rose following Russia’s invasion of Ukraine, there are signs they are falling. However, other public transport prices have risen faster and farther during the fuel tax freeze of the past 13 years.While fuel prices are currently up 23% in Q2 2011, we see a staggering 76% increase in bus fares (even in recent government intervention) and train fares have risen by 50%.To make matters worse, just weeks before the government decided to spend £6bn on lower fuel prices, it reduce The investment budget for walking and cycling infrastructure exceeds £200 million.
Policies such as bus fare caps have proven to be very effective.exist greater manchester For example there is a jump 1.5 million passengers in just three months. More investment in public and active travel will benefit us all, provide more services to low-income families, and reduce carbon emissions.
Methodology: Carbon emissions from the fuel tax freeze were calculated using two methods.The first (i) involved using ONS cost of living and food survey data to calculate the total value of the freeze, assuming no demand response (i.e. no increase in fuel consumption) and comparing this estimate with the OBR and treasury, which includes Demand Response. This difference indicates the total increase in fuel consumption expected by the government, which can then be translated into equivalent emissions.The second (ii) approach involves using the price elasticity of demand derived from the paper Professor David Begg and Claire Haigh Independently derive demand responses to price changes. Again, this demand response can be converted to emissions using simple metrics. The two approaches lead to similar conclusions, with an increase in CO2 emissions of 3.9 Mt(i) or 3.4 Mt(ii).
Image: iStock
