Full throttle: Cutting fuel duty will boost the economy

By Harry Fone, grassroots campaign manager at the TaxPayers’ Alliance

The cost of living crisis shows no signs of abating. Millions of households across the country are facing rising bills. Many of them rely on their cars to do the weekly shop, ferry the kids around and everything in between to ensure smooth running of day-to-day life. As my colleague Sara Rainwater recently wrote, filling up her fuel efficient Toyota Yaris cost £40 for a full tank a year ago. It’s now rocketed to well over £70.


In recent weeks fuel prices have thankfully come down slightly and the government’s reduction in fuel duty by 5 pence has eased the pressure on people’s budgets - but only a little. So I was interested to read a comment piece in The Sun by Howard Cox of FairFuelUK calling on the Tory leadership candidates to cut fuel duty by 20 pence. He rightly points out that other European nations have introduced cuts of similar amounts - notably 25 pence in Germany’s case.


It would certainly be welcomed by motorists at the pump - but what (if any) would the economic benefits be? 


Using our dynamic tax model, we’ve run the numbers and the results speak for themselves. If fuel duty (on both petrol and diesel) had been cut at the start of this calendar year from 58 pence to 38 pence per litre then the model suggests that over 10 years:

  • GDP would be £17 billion or 0.53 per cent higher
  • Investment would be £4 billion or 1.29 per cent higher 
  • Average weekly earnings would be £4 or 0.53 per cent higher

Put simply, the country would be much better off. The economy would be billions of pounds larger, firms would invest more and perhaps most important of all, people would have more money in their pockets. This government and indeed the next one should take heed of these figures - the benefits are clear for all to see!

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