With the government under pressure to close the £22bn public finance gap, one possible solution is for the Chancellor, Rachel Reeves, to raise fuel duty in her first Budget on October 30th. Analysis by Evelyn Partners, the professional services firm, suggests that this could raise £5.5bn per year, representing 25% of the gap in public finances.
Jayne Harrold, tax Partner at Evelyn Partners comments:
“Fuel duty has been frozen since March 2011 at 57.95p per litre, with no inflationary increases, and was temporarily reduced by 5p per litre in March 2022 to help with the cost of living crisis. The latest statistics published by HMRC show that 46.4 billion litres of fuel and diesel were supplied between 1 July 2023 and 30 June 2024. A 10p rise in fuel duty, removing the temporary 5p cut and applying a 5p increase, together with the VAT that applies to fuel duty, would fill more than 25% of the £22bn public finance gap by raising £5.5bn per year for the Government.
“The cost to a driver filling a 55 litre vehicle would be £6.60 per fill up. There is much discussion in the industry about retailer margins following a Competition and Markets Authority investigation. Simultaneous action to address the perceived overcharging issue may help to reduce the impact to drivers of a fuel duty rise.
“Fuel duty raised £24.4bn for the Government in the period from 1 July 2023 to 30 June 2024. With the uptake of electric vehicles, fuel duty receipts are declining and will continue to do so. Addressing the looming funding gap with a new solution will be critical for the Government to keep public finances in good shape.”
