Fuel Duty Framework : arguments for and against increasing the tax rates

As part of the 2008 Climate Change Act and the Sixth Carbon Budget, the United Kingdom government announced a 78% emission reduction target by 2035, compared to 1990 levels. The Climate Change Committee advised the government to phase out carbon-intensive vehicles and fully transition to electric vehicle sales by 2030. For the 12th year, the rates of the Fuel Duty policy will stay frozen until 2023. This freeze is welcomed by a majority of road users, while some experts see it as an economic, environmental and health threat. Although some studies assume economic benefits with maintaining the Fuel Duty rates frozen, data show that this freeze leads to negative economic, health and environmental externalities. Increasing tax rates would contribute to economic growth while reducing health and environmental threats. If the United Kingdom wants to be coherent with its environmental objectives, it should demonstrate a more transparent and coherent strategy. Therefore, taking political risks to focus on long-term society well-being would make all stakeholders better off. The two following policy recommendations (a and b) give directions for the next UK Budget and Spending Review to increase the Fuel Duty rates. a) increasing the Fuel Duty rates in line with inflation. This policy will be a short-term strategy because Fuel Duty revenues will decline over time due to a decrease in combustion car demand. It will enable the government to further fund EV infrastructures and public transport services. b) accelerating the shift to ZEVs by reducing the tax price for low carbon fuels by 85%. This will incentivise car users into the green transition. Because Fuel Duty receipts from conventional fuels will decline over time, a higher demand for low carbon fuels will occur, increasing the revenues generated from the low carbon fuel tax