Embargoed: 00:01 Monday 17th October 2022
- TaxPayers’ Alliance analysis shows the UK has some of the highest fuel duty rates across Europe, at 53p per litre.
- This means a ‘petrol premium’ on prices at the pump, leaving them higher than Germany and Sweden, which the temporary 5p cut does little to offset.
- Campaign group models the impact of bigger, permanent fuel duty cuts on economic growth.
With fears that prices at the pump are set to rise, the TaxPayers’ Alliance (TPA) has outlined the scale of Britain’s ‘petrol premium’, which sees drivers facing some of the highest taxes on fuel in Europe.
Drivers in the UK face higher costs at the pump, pushed up by fuel duty and VAT. At 53p a litre, the UK has the eighth highest petrol duty and the joint highest diesel duty in Europe. This is higher than Sweden, over 70 per cent more than Germany, and almost double that paid by motorists in Hungary.
At the Spring Statement, the previous government implemented a temporary 5p a litre cut to fuel duty for 12 months to help with the cost of living crisis. But the UK still suffers a petrol premium, meaning the government would have had to almost quadruple the 5p cut for UK petrol prices to drop to the same level as Sweden over the summer. And duties would have needed to fall by another 15p just to match petrol prices in Germany in August.
Cutting fuel duty would help the current government boost economic growth. The TPA’s dynamic tax model, which estimates the impact of tax changes on the economy, suggests that reducing fuel duty for petrol and diesel permanently to the EU average would create £18 billion of additional GDP growth. Going further and permanently cutting it to the level of Hungary, which had the lowest duty in the EU, would result in GDP being £26 billion higher.
This complements analysis previously carried out by HM Treasury in 2014, which outlined the dynamic effects of fuel duty reductions. This included the lower production costs for firms, in turn resulting in higher profits which are then distributed to workers through higher wages and shareholders through higher returns on investment. This is because firms have to hire more workers and rent more capital to meet the new, higher demand levels.
The TPA is calling on the government to extend the temporary fuel duty cut until the cost of living crisis has passed, and to consider a larger permanent cut to help the long term drive towards economic growth.
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Key findings:
- At 53p a litre, the UK has the eighth highest fuel duty on petrol and the joint highest fuel duty on diesel compared with EU member states. This is higher than Sweden, over 70 per cent more than Germany, and almost double that paid by motorists in Hungary.
- Fuel duty on petrol, without accounting for value added tax (VAT), makes up over 31 per cent of the total price of petrol. This is the seventh largest percentage compared with EU member states.
- Fuel duty on diesel, without accounting for VAT, makes up 29 per cent of the total price of diesel. This is the third largest percentage compared with EU member states. Only Italy, France and Portugal are higher.
- Reducing fuel duty for petrol and diesel in the UK permanently to the EU average excluding the UK would create £18 billion of additional GDP growth, £4 billion more investment and a rise in average weekly earnings of £4 over ten years.
- If the UK permanently cut fuel duty for petrol and diesel from 58p a litre to the level of Hungary which had the lowest duty in the EU, it would result in GDP being £26 billion higher, £6 billion more in investment and average weekly earnings up by £6 over ten years.
- Sweden, which had the same duty on petrol as the UK, cut their duty by 12p a litre this year. The average price of petrol in Sweden is £1.57 a litre. The UK would have to almost quadruple the 5p cut announced in March 2022 to reach the same price of petrol as Sweden.
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John O’Connell, chief executive of the TaxPayers' Alliance, said:
“Brits are paying a petrol premium, with huge duties and higher prices at the pump than places like Germany and Sweden.
“The temporary 5p cut does little to level the playing field, but slashing fuel duty down to European levels could boost the British economy.
“The new chancellor should extend the temporary relief until the cost of living crisis has passed, and consider a proper permanent cut to help with the drive towards growth.”
TPA spokespeople are available for live and pre-recorded broadcast interviews via 07795 084 113 (no texts)
Media contact:
Elliot Keck
Investigations Campaign Manager, TaxPayers' Alliance
[email protected]
24-hour media hotline: 07795 084 113 (no texts)
Notes to editors:
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Founded in 2004 by Matthew Elliott and Andrew Allum, the TaxPayers' Alliance (TPA) campaigns to reform taxes and public services, cut waste and speak up for British taxpayers. Find out more at www.taxpayersalliance.com.
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TaxPayers' Alliance's advisory council.
- The dynamic tax model, which looks at the impact of tax changes on growth, wages, and investments, was produced by economics consultancy Europe Economics for the TaxPayers’ Alliance.