Treasury claims £7bn economy boost over fuel duty cuts


Budget 2014

Reductions in fuel duty have had major a positive impact on the economy, raising the UK's Gross Domestic Product (GDP) by around half a per cent, according to a new Treasury study.

Taxes at the pumps have been reduced by 13 per cent since the coalition Government came into power in 2010, and increased company profitability and spending by individuals is ploughing money straight back into the economy, allowing for otherwise lost revenues to be recovered.

The study shows that a lower rate of tax results in higher tax revenues in the long run and that the reduction in fuel duty has benefited household incomes.

However, it does not take into account the effect of increased congestion and greater road use, with the report claiming that their impact was immaterial.

"Fuel duty cuts have produced an increase in GDP by between 0.3 and 0.5 per cent (£4.5bn to £7.5bn in today's prices)," a Treasury official told the Daily Mail.

This equates to an average share per household of between £175 and £300 and increased investment by around two per cent," he said.

The Treasury describes fuel duty – which earned the Government £26.6bn last year – as a 'distortive tax', which when cut, provides a big boost to other areas of the economy.

The Government claims that its fuel duty freezes will result in petrol at 20p per litre cheaper by the end of this Parliament than if it had taken no action. It also states that the freeze will save consumers a collective £22.5bn over five years.

Despite the news, motorists are likely to remain pessimistic, with UK fuel duty remains the highest in Europe at 61p per litre of petrol and 59 per litre of diesel.