Think Tank Urges UK Chancellor to Raise Fuel Duty

The Resolution Foundation, a prominent think tank, has advised UK Chancellor John Healey to increase fuel duty rather than maintain the current freeze, a move that has generated controversy amid pleas for relief from motorists facing high pump prices.

The think tank argues that continuing the freeze on fuel duty should not be a governmental priority, suggesting it disproportionately benefits wealthier individuals. Instead, it proposes regular, small increases to the levy, a departure from the extended freeze implemented by previous administrations and repeatedly prolonged since 2022.

Under current plans, fuel duty is slated to rise by 3 pence per liter on January 1, followed by another 2 pence increase in March when a temporary cut introduced in 2022 is scheduled to expire. An additional 1 pence increase is anticipated in April as a 16-year freeze on the levy is set to end.

The Resolution Foundation, whose former chief executive Torsten Bell now serves as a Treasury minister, contends that allocating scarce resources to extend the fuel duty freeze is not the most effective use of public funds. The organization advocates for a "little and often" approach to fuel duty increases, aiming to end what it terms "years of fiscal fictions."

The average price of diesel recently surpassed £2 per liter, with petrol costing approximately £1.75 per liter at many stations. This situation is exacerbated by ongoing disruptions to production and supply chains, particularly due to the conflict in the Middle East.

The think tank's analysis suggests that higher-income households allocate a larger portion of their spending to fuel compared to lower-income households. It also asserts that fuel duty cuts have diminished revenue from driving and weakened incentives to use fossil fuels. While acknowledging that an immediate, substantial increase to the duty is politically unfeasible, the Resolution Foundation proposes gradual quarterly increments, raising the duty from its current 53 pence per liter to 58 pence by 2028 and 66 pence within five years.

Critics of the proposal have voiced concerns about the impact on ordinary citizens. Shadow Transport Secretary Richard Holden stated that the idea of fairness behind such increases is out of touch with the realities faced by working individuals who depend on their vehicles for daily life, including commuting, transporting children, and visiting family.

Howard Cox, founder of the advocacy group FairFuelUK, argued that the notion of fuel duty freezes being poorly targeted overlooks the fact that all goods transported by road contribute to fuel costs. He emphasized that increased fuel taxes do not solely affect drivers but also drive up prices for food, deliveries, manufacturing, farming, and services across the economy. Cox asserted that drivers have been treated as a "Treasury cash machine" for years, paying substantial amounts in fuel duty and VAT with minimal return benefits.