The news this week that the Institute for Fiscal Studies recommends that George Osborne should raise fuel duty to keep his deficit reduction on track has got economists scratching their heads. Everybody, including The Treasury, agrees that freezing fuel duty since 2011 has brought significant benefits to the UK economy. The CEBR has calculated that low transport costs have raised GDP by 0.6%, created 121,000 jobs and created an extra £11.6 billion of economic activity. Even The Treasury has admitted that ‘freezing fuel duty benefits the economy enough to offset almost all the immediate loss of tax income and the short term gains that have been measured since the freeze was put into place will extend for decades, boosting GDP to higher levels than previously estimated’. And far from costing the government tax revenue the freeze has actually improved tax receipts to The Treasury by a net gain of £1.3 billion. and that’s because of all the extra income tax, corporation tax and VAT from all that increased consumer activity out there. And, let’s not forget, that its consumers on the street that have helped us spend our way out of recession. Consumer activity accounts for 60% of all GDP. But consumers will only spend if they can drive.
So why publish a report that clearly goes against accepted wisdom and established facts? Sadly its not that simple. There are agendas here. The IFS has a known tendency for a bit of green flag waving and cars, vans, trucks and roads don’t really fit into their world view. We know that Mr Osborne is under great pressure from the Greens to reduce road use (high fuel duty was always a handy way to reduce transport pollution) and the recent diesel emissions scandal has embolden the Green’s ardour. So we must take this IFS report with a little scepticism. But the most worrying thing could be that No 11 actually wanted a report with conclusions like this. Forgive me if I sound like a conspiracy theorist but if you wanted to raise fuel duty in the next budget but knew it was political suicide, you’d soften everybody up with furlongs of weighty flannel to bolster your case in advance of the dreadful deed. But the evidence out there against raising duty is now so overwhelming that that would be foolish, wouldn’t it? Let’s see what else comes out of the woodwork in the next few months (and I hope my theory isn’t true) but if we see lots of contrary conclusions like the IFS report we can only come to the inevitable and sad conclusion that George is working behind the scenes to get drivers ready for a painful budget. We think this would be a big mistake - both politically and economically - and if you agree drop your MP a line. Better still why not write to George himself. His address is easy: No 11 Downing Street, London. SW1A 2AB. The more who write, the less we'll pay. We will be putting up an easy link to do this by email very shortly. Make sure you have signed up to support FairFuelUK so you get that link asap.