Boris Johnson's plan to slash fuel duty would cost Treasury £1bn per year, warns top think-tank
Boris Johnson’s rumoured plan to cut fuel duty by 2 pence per litre would leave the Treasury with £1bn less to spend each year, a major think tank has warned.
The Prime Minister told The Sun that he heard motorists’ concerns “loud and clear” after hinting that broader tax cuts were on the way in Sajid Javid’s next Budget.
The Institute for Fiscal Studies (IFS) said the Treasury had already lost out on a potential £5.5bn since the Tories came to power in 2010 by freezing the duty rather than raising it in line with inflation.
It said revenue stands at £28bn a year, 1.3% of national income, but could have produced an extra £19bn if governments had stuck to the 2.2% level raised at the start of the century.
The group added that ministers also faced a "huge long-run fiscal challenge" in the tax disappearing overall, following the UK's commitment to reaching zero net emissions by 2050.
This would present further challenges they say, since the tax has a knock on effect of curbing congestion, greenhouse gas emissions, local air pollution, noise, accidents and damage to infrastructure with fewer drivers on the road.
The IFS said new taxes needed to be designed to replace it, with higher taxes for drivers depending on how many miles they rack up and those who drive in congested areas such as city centres.
Such proposals should be brought forward “quickly” ahead of fuel duty revenues falling much further, they say, and before more and more people buy hybrid or electric cars in the expectation of paying little tax on them.
Rebekah Stroud, co-author of the report and a Research Economist at the IFS, said: "Another 2p cut, as reportedly mooted by the Prime Minister, would cost a further £1 billion a year.
"The bigger challenge is that revenues are now set to disappear entirely over coming decades as we transition to electric cars.
"The government should set out its long-term plan for taxing driving, before it finds itself with virtually no revenues from driving and no way to correct for the costs – most importantly congestion – that driving imposes on others."