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The author is a visiting professor of transport economics at the University of Plymouth and former chairman of the Integrated Transport Commission (1999-2005).
Motor vehicle taxation is a key issue for politicians, who must balance electoral expediency with sensible policy. But neither of the UK’s two main parties has so far succeeded. Labour faces a choice in next month’s budget over whether to raise fuel taxes (the party denied accusations of such intentions during the election campaign) and the Conservatives have ruled out road pricing.
If inflation is taken into account, fuel duty has been cut by 40% since 2010, costing the Treasury over £100bn in tax revenue. Their forecasts assume that fuel duty will rise in line with inflation in future budgets. So when political parties say they will not increase fuel duty, do they mean a nominal increase or in real terms (after accounting for inflation)? If nominal, then they would have to find around £6bn of savings elsewhere. This was not taken into account in any of the cost calculations made in the general election manifestos.
The political challenge they face, even with simply raising fuel duty in line with inflation, is that vehicle taxes have become politically toxic. The fuel duty hike was introduced by Ken Clarke as Chancellor of the Exchequer in 1993, with an initial 3% and then 5% increase each year. It was done on the pretext of reducing fuel consumption and air pollution. The tax was raised to 6% when Gordon Brown was Chancellor of the Exchequer, leading to the fuel duty protests of 2000, the only occasion when Labour fell behind in the opinion polls during Tony Blair’s first term as prime minister.
Some 350 years ago, Jean-Baptiste Colbert, the French finance minister, declared: “The art of taxation consists in plucking the goose in such a way as to get the greatest possible number of feathers with the least possible hissing.” As far as the fuel tax is concerned, this goose has been plucked too much; politicians have been reluctant to increase it ever since. This is especially so when there is a cost of living crisis and fuel prices are high.
However, although perceived as a popular measure, the reduction in fuel taxes since 2010 comes at a price in terms of lost revenue, lower sales of electric cars, more pollution and carbon emissions and less public transport travel. Without it, carbon emissions from road transport would be 24% lower than today, and rail and bus use would be almost 10% higher.
Labour has promised during the campaign and since being elected not to raise taxes on “workers”. While there are millions of workers who drive a car and would be affected by any increase in fuel taxes, the cuts disproportionately benefit those on higher incomes, who save twice as much as those on lower incomes. The poorest households are seven times more likely to be without access to a car than the richest.
The Conservatives have indeed managed to use road tax as a weapon in recent years and have ruled out road pricing, but how does the party’s next leader intend to pay for road use when there is a £28bn-a-year deficit as cars are electrified and motorists no longer pay fuel tax? The Conservatives would become the party of traffic: road pricing has the potential to reduce congestion by more than 40% by incentivising road users to save money by changing the time they travel.
Ministers say no transport policy is more conducive to economic growth than national road pricing, if implemented correctly. Congestion is a huge drag on the economy. A Royal Commission should look at how we pay for roads when electric cars replace petrol and diesel vehicles.
In his 1956 book Profiles of courageJohn F. Kennedy wrote that he admired politicians who put politics before policy. Raising fuel taxes, at least in line with inflation in the short and medium term, and raising road prices in the long term, are praiseworthy policies, no matter how challenging the policy.