Fuel duty – what happens now?

Mike Webb
Head of Public Affairs at Freight Transport Association
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Post date: Thursday, 16th August 2012

Rising fuel costs are crippling for the whole country and the effect is no more devastating than for freight operators, whose businesses and livelihoods are so dependent on the price of fuel.  Not only does it have a negative impact on road hauliers but also their customers and ultimately everyone, through the prices on the shelves.

An analysis of distribution costs in April showed that HGV running costs were at an all-time-high thanks to the price of diesel.  The increase has pushed up the cost of running a vehicle by an average of £1,900 per year – an almost impossible situation for operators.  Fuel represents around 40% of annual operating costs compared to around one third three years ago and it will only continue to rise if we do not all continue to work together and do something about it.

The population as a whole saw fuel prices soar throughout last year and so when the budget was announced and the news came that a fuel duty increase was being kept for August, it was met with fierce criticism. FTA and FairFuelUK worked together to fight this; lobbying government and persuading MPs on all sides of the House of Commons; and at the same time urging members to write to their local MP and express their objections.

Growing support

Over 300,000 people now support FairFuelUK; and more than 50 MPs declared publicly that they would be voting to scrap the increase.  Finally on 26 June the chancellor listened to the people, and his colleagues in Parliament, and announced the 3.02p per litre rise would be frozen until January 2013.

It is worth restating at this stage that since January 2011 FTA and other fuel duty campaigning organisations have generated a saving of at least 9ppl from the price of diesel for every operator.  This is an unprecedented level of saving – however we cannot afford to sit back and relax in the knowledge that we won the battle while the war is still raging.

We were thrilled at the postponement and it was a great win for the campaign, but the fight is far from over.  The campaign to fight rising fuel costs must step up a gear and we must all get behind it before we find ourselves in an even graver situation come January.  We managed to pull together and make the chancellor ditch the 3p per litre rise once and now we must do it all over again – but hopefully this time on a more permanent basis.

The next stage in the campaign is to change government thinking.  It is unhelpful to see the campaign in terms of just working to bat back each fuel duty rise as they approach; we feel a more fundamental rethink of road taxes is required. Earlier this year, FTA and its partners in the FairFuelUK coalition asked The Centre for Economics and Business Research (CEBR) to investigate whether cutting fuel duty would generate more tax revenues. CEBR investigated the economic impact of a fuel duty reduction and found some interesting results.  

Jobs and GDB boost

The report suggested that 175,000 jobs would be created within a year if there was a 2.5p reduction in fuel duty, this would go up to 180,000 jobs within five years.  There would be no loss to government and in fact GDP would be boosted by 0.32% within a year and 0.34% within five years.  A higher reduction of 5p per litre would net an additional £1.2bn within a year for the Exchequer.

Therefore it's not just about stopping the increase but lobbying government to reduce the current duty rate. We want to effect a step-change in government thinking – to get away from the tired old belief that higher fuel duty means more money for the government at a time of economic need.  FTA believes increased fuel duty doesn’t make economic sense and taxes on fuel should be considered in the light of the government’s main priority – growth in the wider economy.

However, the other important factor to consider is that industry will be no more able to cope with a hike in fuel duty come January than it would have been in August.  Nothing has changed and so there is no reason that the duty rise can be justified in January when it could not be in August. The consequences could be devastating for many operators, and jobs will potentially be lost.

Going forward we all need to pull together once again to stop any further increases. So please visit the FTA website, write to your MP and let them know the reality of fuel duty increases for your business and your community.  This is a vital component in changing government thinking which will surely benefit us all.

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