Treasury claims fuel duty cuts have put £7bn in to the economy since Coalition came into power

17/04/2014

Since the Coalition came to power in May 2010, cuts in fuel duty have significantly boosted output and government revenues.

A new Treasury study released today estimates that the effective 20 per cent real cut in fuel duty since 2010 will add 0.3 to 0.5 per cent to growth over the long term.

Checked by leading academics, the study shows that the impact of the in terms of increased profits to companies, the income of households and consumption leads to rising tax revenues.

Using a Her Majesty’s Revenue and Customer model, the study also supports the view of supply side economist who argue that in time lower taxes will produce higher revenue for the Exchequer.

A Treasury official said, “Fuel duty cuts have produced an increase in GDP by between 0.3 and 0.5 per cent (£4.5bn to £7.5bn in today’s prices).This equates to an average share per household of between £175 and £300 and increased investment by around 2 per cent.”

Since George Osborne arrived at the Treasury in 2010 fuel duty has been cut by 13 per cent when inflation is taken into account.

Without the policy changes, it would have jumped by 7 per cent.

The result has been a 20 per cent benefit for consumers or industry.

Oil prices have long been seen as a hidden tax on business and the consumer that can have a deleterious impact on economic expansion.

The HMRC has taken no account of the resulting congestion caused by more driving and higher road use.

The report claims that the impact of increasing vehicle traffic is not material.

According to the study fuel duty that hits both businesses and households hard is one of the most distortive taxes.

The costs are particularly pronounced on business because an initial tax rise in 2010 was set too high.

Successive governments have used fuel duties as a sin tax designed to keep vehicles off the road and fulfil the agenda of green activists.

The first fuel duty cut in 2010 had the greatest impact on national output and the impact became less with subsequent reductions.

The Chancellor believes that his tax cut agenda that has seen corporation tax reduced to 21 per cent and the highest rate of income tax brought down from 50 per cent to 45 per cent is making a significant contribution the UK’s recovery the most robust among advanced countries.

In his most recent budget Osborne extended and doubled the investment allowances for smaller businesses in an effort to encourage the fixed and business investment necessary to support output.

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