Thursday, 6 December 2012

UK cancels fuel tax increase

Yesterday, the UK's Chancellor of the Exchequer released his Autumn Statement, which essentially is a revision of tax and spending policies between budgets.

This year there had been some signs of announcements on highways policy, what came was less than some had expected.  More is to come next year following the reviews of the Highways Agency and related policies around charging.

However there were two big announcements on roads.  One was to announce more money to be spent on roads (the "National Infrastructure Plan" lists projects), the other was to cancel a twice postponed increase in fuel excise duty of around 3p/l.

That was significant.  

In the United States, it is politically impossible for the Federal Government to increase fuel tax and almost all states face the same dilemma.  Is that what has happened in the UK?

Motorists know that the price of fuel in the UK includes a 59p tax, which itself has 20% VAT on top of it, meaning the Government gets over 70p/l, or around half of the price of fuel.  So it isn't oil companies that get the blame anymore, but government.

With none of the fuel tax revenue hypothecated for transport spending, motorists resist fuel tax increases as being an unfair burden on them, or rather people who are involved in the transport sector or who drive extensively (as part of their business or as commuters).  In the UK, the dominant mode for commuting outside commutes to the centre of major cities such as London and Manchester, is the car.  Even in London and Manchester, cars are the major mode for commutes that do not terminate in the centre cities.

The implication is that if Government wants more revenue, it has to find it from other sources, or it has a couple of other choices:

- Direct any future increases in fuel tax into expenditure on transport, so that motorists might see that something is done with the money; or
- Plan to replace fuel tax with road pricing.

Expect that debate to emerge more regularly in the coming years, because there are future fuel tax increases still planned (but the political focus is always on the immediate).

Certainly the Labour opposition demanded that fuel tax increases be scrapped, and that continuing them would inevitably mean more unpopularity for a government behind in the opinion polls.   I doubt Labour can campaign on increasing fuel taxes again.

The cancelled increase had been planned and set by the previous Labour Government, and another one was set to occur in April 2013 (showing you how long the cancelled one had been postponed).  

That has been postponed until September 2013, and I wonder if it will proceed.  If not, it will fuel the emerging debate about how motorists are charged for using the roads in the UK.

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