Told you so

The Treasury has just published its analysis of the impact of reductions in fuel duty. Few logisticians will be surprised to learn that it concludes that this results in an increase in Gross Domestic Product.

The report “Analysis of the dynamic effects of fuel duty reductions” says that over the course of this parliament fuel duty will have fallen by 13 per cent when it was originally planned to rise by seven per cent. In total, fuel duty will be some 20 per cent lower than planned back in 2010.

The Treasury’s model suggests a long term increase in GDP of 0.3 to 0.5 per cent as a result of this – and that could be as much as £7.5 billion. While that’s good news for the economy, the government’s fear has always been that it reduces the tax take that has to be filled from somewhere else.

However, the modelling shows increased profits, wages and consumption all add to higher tax revenues. As a result, the cost of the policy falls by between 37 and 56 per cent in the long-term – nothing like as bad as the Treasury might have feared.

Not surprisingly, industry organisations such as the Freight Transport Association are cock-a-hoop that the government appears to have accepted the argument that they have been making for some time now on fuel taxes

FTA chief Theo de Pencier said: “From the conclusions in this report today, it does appear as though the Chancellor has caught up with our findings, and there is now every chance for him to go further and boost growth by cutting 3 pence per litre from current rates.”

So, a “told you so” might be justified. But winning a battle on fuel duty does not mean the war is won. The price of oil remains volatile, and although pump prices have been lower over the past few months, political unrest in the Ukraine could still push prices higher. The FTA has called for a 3p cut in fuel duty which it reckons could save the transport industry some £350m a year. The arguments for that continue to mount.

Malory Davies FCILT,
Editor