Source > iNews
June 24, 2022 07:00 BST
As soon as the Government delivers billions in energy bill support, another acute cost of living pressure comes along. The recent surge in petrol costs has taken the cost of filling an average family car to more than £100, as fuel prices have reached new highs every day for a month with the £2 litre coming ever closer.
In light of a fresh £15 billion support package for energy bills, of which we at the Resolution Foundation expect twice as much cash to flow to the poorest half of Britain than to the richest half and covering more than 90 per cent of the rise in the poorest households’ energy costs, similar calls are surfacing for action to bring down the price of fuel.
While trimming VAT or further cutting fuel duty could deliver short-term respite for car-dependent families, making petrol cheaper would be regressive, run contrary to the UK’s net zero ambitions, and accelerate tricky decisions for the Treasury.
On fairness we can take March’s 5p cut in fuel duty as an example. This £2.4bn giveaway will save each driving household £75 per year (were it to be fully passed through to customers of course, but that’s another question). For those who do not drive, yet feel the effects of more expensive fuel in pricier food and other essentials, no savings are on offer.
Many poorer families, though, have no choice but to drive. This reliance on cars particularly affects those in rural areas poorly served by public transport, or with reduced mobility due to age or disability. Recent Resolution research found that in small towns, people can get to 28 times more jobs in a 30-minute commute by car than if they commute by public transport.
There is a clear rationale for Government helping those for whom higher transport costs are squeezing budgets. But doing so through cheaper fuel would see more benefits flow to those who are in less need of help.
In fact, by spending more than twice as much on petrol per week as the poorest tenth of households, the richest tenth of families would pocket most of the savings on offer. This is a result not only of richer drivers driving more, but of car use in general, with wealthier households much more likely to drive, again by a factor of around two-to-one.
Instead, committing to uprate benefits and pensions by close to 10 per cent next April, as the Chancellor did last month, and maybe issuing new cost of living payments in the meantime to those in the greatest need, are much better options than new and badly-targeted fuel subsidies.
On emissions, soaring fuel prices are one of the (many) factors behind surging sales and interest in electric cars, a much-needed societal shift that risks being derailed should petrol prices be trimmed. It has been argued that the decade-long freeze in fuel duty is partly to blame for the surge in larger, fuel-inefficient cars squeezing down Britain’s roads, and the same logic applies to the shift to clean transport: people are less likely to plump for an electric vehicle if fuel savings are reduced.
And while electric vehicles are the mainstay of wealthier households for now – likely even more so now following the early removal of the plug-in car grant – new vehicles need to be bought by someone before they become available in the second-hand market whereby, assuming they lose 60 per cent of value in three years, as fossil fuelled cars do, they will be much more affordable.
Finally, cutting fuel taxes would be bad news for the exchequer, which is already facing up to a decade of increased spending to cope with an ageing population, higher healthcare costs, and the need for widespread investment in infrastructure.
Fuel duties underpin around £35 billion of annual state spending, yet are set to decline quickly (we see an £8 billion gap by 2030 based on current trends). Cutting this source of revenue would require higher taxes elsewhere, or additional borrowing, at a time when national finances are already stretched.
Expensive fuel is pouring petrol on the ongoing cost of living squeeze, especially for poorer households dependent on the car. And while Government is facing pressure to intervene, doing so in a way that makes petrol cheaper would be unfair, push up emissions, and add to fiscal pressures that the state is already feeling.
Bank of England Boris Johnson Charity Sector Children Comment Piece Conservative Government Cost of Living Crime Economics Energy Food Food Banks food prices Fuel Health Housing Hunger Industrial Action inequality Inflation Labour Party Living Wage London Martin Lewis Mental Health Michael Gove Minimum Wage Opinion Piece Pensions Poverty protest protests Rent Rishi Sunak RMT sunak Supermarkets Trade Unionism TUC Universal Credit Video Wages Wales Work Young People