Scrap fuel duty rises

The Times reports that the accountancy firm Grant Thornton and a host of other organisations such as the AA, Chambers of Commerce and Freight Transport Association have called for a planned rise in fuel duty in the Budget to be scrapped. I couldn't agree more.

The TPA report The case against further green taxes (PDF) set out, in chapter two, the case against ludicrously high fuel duty rates.

We set out how motoring taxes - charged on top of VAT - are set at between 40.9 and 3.6 times the global social cost of carbon dioxide emissions. Each motorist is therefore paying between £548 and £743 per year beyond the cost of their emissions.

The only way that the fuel duty is justified is by focussing on all manner of other externalities, from noise to accidents to congestion. Imagine if factories were taxed for noise they produced, if charity parachute jumps were taxed for the cost parachuting accidents imposes on the NHS, if we taxed first time buyers in order to reduce excess demand for homes instead of trying to ensure there is a greater supply (congestion is just an excess of demand for road space). The proper response to small-scale, localised externalities is to regulate against dangerous or excessive levels; the proper response to congestion is to build more roads.

The reality is that when politicians push for increased fuel duty they are doing so not in order to save the planet but in order to squeeze more money out of hard working taxpayers. Ken's proposed increase in the Congestion Charge rate for 4x4s and other big cars is exactly the same. The only difference is that the Congestion Charges wastes almost all of the money it raises:

"Conservative councillor Phil Taylor challenge's TfL's assertion that congestion charging is generating substantial surpluses. He says: "TfL's own statement of accounts show that the cumulative surplus generated from the start of the scheme until the end of the last financial year was only £189.7 million.

"This amount has barely covered the original scheme's set up costs of £161.7 million. Pretty much all of the £677.4 million collected in the first three and a bit years of operation of the scheme has been spent on out of control set up and running costs."

The additional charge for big cars is just Ken Livingstone playing class warrior. Making very productive people who contribute a huge amount to the capital's economy feel unwelcome.

Fuel Duty increases and increased congestion charging both unfairly single out motorists who already pay VAT on petrol and when buying new cars. They also impose a burden on the rest of the economy by making road haulage - the main way in which goods are moved around the country - more expensive.

If politicians accepted how weak the case for further green taxes is and stopped or reversed increases in fuel duty then they could reap the rewards electorally. Look at this graph, from our report on green taxes:

Those consuming the most petrol, and hence, paying the most fuel duty are middle class commuters. An electoral constituency well worth appealing to. Our polling has shown that most people are pretty cynical about green taxes and think they are just a revenue raising measure. 63 per cent agreed with the statement: “Politicians are not serious about the environment and are using the issue as an excuse to raise more revenue from green taxes.” Bashing cars won't improve a politician's image.

Increasing fuel duty is both a bad idea and makes no political sense. Alistair Darling should give motorists a break.

Cross-posted from the TaxPayers' Alliance blog.