IFS warns government against fuel duty cut
The Institute for Fiscal Studies (IFS) has warned the government against cutting fuel tax by 2p per litre in the upcoming budget, which it is reportedly considering, saying it would cost the government £1bn a year in lost revenue.
Read more: Fuel duty cut on the cards as threat of general election looms
The IFS, a respected economic think tank, also called on the government to address the “huge long-run fiscal challenge” presented by the move towards electric vehicles, which will wipe out fuel duty.
Prime Minister Boris Johnson and chancellor Sajid Javid are reportedly weighing a deep 2p cut to fuel tax, which is currently set at 57.95p per litre. The duty is expected to fall by at least 1p per later at the next budget.
Yet the IFS warned today that the fuel duty freeze has cost the exchequer £5.5bn since 2011 and that slashing the levy would be even more expensive.
IFS research economist Rebekah Stroud said the think tank had calculated that “Cuts to fuel duties over the last two decades have contributed towards revenues’ being £19 billion a year lower than they would have been.”
“The bigger challenge is that revenues are now set to disappear entirely over coming decades as we transition to electric cars.”
“The government should set out its long-term plan for taxing driving, before it finds itself with virtually no revenues from driving and no way to correct for the costs – most importantly congestion – that driving imposes on others.”
The IFS suggested that new car taxes should reflect “at least distance driven, and ideally vary according to when and where journeys take place”.
Read more: IFS: Johnson’s tax cut pledges will cost billions
“Those driving in busy places would pay more, but the majority of journeys would be taxed less heavily than at present.”
(Image credit: Getty)