The Government could introduce monthly rises in fuel duty from next year despite the Prime Minister’s promise to freeze it, says TMC.
This follows a recommendation last week from think-tank Institute for Fiscal Studies (IFS), which urged the Government to start ‘uprating’ fuel duty in line with inflation every month.
IFS’s Green Budget Report said this would “separate our routine inflation uprating from policy decisions, rightly taken in the budget, as to whether real rates of duty should be increased or reduced”.
Paul Hollick, managing director of mileage capture and mobility data specialist TMC, said: “I would not be surprised if the Chancellor rounds off the expected announcement of yet another fuel duty freeze with the caveat that there will be a review of the duty regime next year.”
He added: “(Chancellor) Philip Hammond must be strongly tempted by the suggestion to use monthly small increases in fuel duty – what many would call a stealth tax – to trickle-charge the Treasury’s decidedly flat fiscal batteries.
“Estimates of the size of the hole in the UK public finances range from £20bn to £60bn. There is only likely to be one outcome of a fuel duty review.”
Hollick said the end result of monthly ‘uprating’ in line with the price index will be same as applying the inflation increases annually.
Assuming 2% annual inflation, a return to indexed fuel duty would increase the tax from just under 58 pence a litre today to nearly 67 pence in 2025.
Hollick urged the Chancellor to resist any form of index-linking of fuel duty. He said: “Fuel tax is possibly the worst thing you can link to inflation; because fuel prices themselves are one of the strongest contributors to higher prices.
“This is something all sides of the fleet industry will need to resist very firmly if the Budget suggests a review of duties on fuel next year.”