Our findings suggest that a 2.5 pence reduction in fuel duty would result in the creation of 175 thousand jobs within a year and 180 thousand jobs within five years of such a reduction. Such a reduction, we estimate, would not result in any fiscal loss to the Government, while GDP would receive a boost of 0.32 per cent within a year and 0.34 per cent within five years.
Now, while I have often echoed Galbraith’s remark that the purpose of economic forecasting is to make astrology look respectable, there is a clear case to cut fuel duty by 2.5p in the Budget. The whole country is groaning under the burden of taxation and such a modest cut with potential benefits and no loss to tax revenue seems to me a small but potentially welcome step.
No one is really talking about the true scandal of fuel, which is that we go to the pumps mostly to pay tax. Spend a few minutes with the petrol and diesel calculator from This is Money and you’ll find that about 60% of the pump price is tax. That’s all too easy to forget when fuelling during a busy day.
I’m not convinced paying at the pumps is the right way to support public services but the Chancellor is backed into a corner. Government must come to live within its means and that means tax. Until the public demand lower spending, it’s difficult to see how much more can be done about the eye-watering cost of petrol. In the meantime, a 2.5 p, revenue-neutral cut to support millions of people seems to me a sensible move.