This is a House of Commons Committee report, with recommendations to government. The Government has two months to respond.
1. The Office for Budget Responsibility (OBR) will now be in its usual 10 week preparation period for the forecast to accompany the Budget on 15 March 2023.1 This Report deals with the ongoing Treasury policy assumption that Fuel Duty2 will rise with inflation, which is then used by the OBR as a policy basis for its fiscal forecasts. It makes no comment on what the current or future level of fuel duty should be.
2. Fuel duty is set as a cash charge per unit of fuel, meaning its real value will fall unless it is uprated with inflation. For almost 30 years, successive Governments have held varying policy assumptions about the future annual increases in fuel duty.3 For example, in March 1993, the then Chancellor, Norman Lamont, stated that “We intend to raise road fuel duties on average by at least 3 per cent. a year in real terms in future Budgets”.4 However, in November 1999, Gordon Brown removed the so-called “fuel duty escalator”, saying only that fuel duty would be decided Budget by Budget.5 The Pre-Budget Report 1999 noted that “From [Q2 2000] the forecast adopts the conventional assumption of fuel and tobacco duty increases in line with RPI inflation, instead of previous escalator uprating, to maintain inflation neutrality”.6 In Pre-Budget Report 2004, while announcing a continuing freeze on fuel duties, the then Government noted that “It remains the Government’s policy that in future years, fuel duties should rise at least in line with inflation […].”7 Alistair Darling’s 2009 Budget announced “an increase in fuel duty of 2 pence per litre on 1 September 2009, and of 1 penny per litre in real terms each year from 2010 to 2013”.8 In George Osborne’s Budget 2011, the new Government set out a ‘fair fuel stabiliser’, which was to see fuel duty rise by inflation alone if oil prices were determined to be ‘high’.9
3. The current underlying policy of the Treasury is that fuel duty will rise in line with inflation (as measured by the retail price index, RPI).10 This does not have a statutory footing—any change to the rate of fuel duty requires legislation. But because it is the official policy of the Government, the OBR undertakes its fiscal forecasts with annual uprating as their underlying assumption.
4. However, the last fuel duty rise in cash terms was 12 years ago on 1 January 2011, when the duty on unleaded fuel rose from 58.19p per litre to 58.95p per litre.11 Since then, successive Chancellors have refrained from raising fuel duty. The Treasury went further in the 2022 Spring Statement, announcing “a temporary 12-month cut to duty on petrol and diesel of 5p per litre”.12
5. Because Governments have consistently not raised fuel duty with inflation, contrary to the underlying policy assumption provided to the OBR, the OBR considers fuel duty a risk to its fiscal forecast. In its November 2022 Economic and Fiscal Outlook, the OBR noted the assumption as one of its “main adverse economic and fiscal risks”:13
The planned 23 per cent increase in the fuel duty rate in late-March 2023, which adds £5.7 billon to receipts next year. This would be a record cash increase, and the first time any Government has raised fuel duty rates in cash terms since 1 January 2011. It is expected to raise the price of petrol and diesel by around 12 pence a litre.14
6. Paul Johnson, Director of the Institute for Fiscal Studies (IFS), commenting on the 2022 Spring Statement’s temporary reduction in fuel duty, noted that:
Not only do the public finance forecasts depend upon the 5p cut being reversed, they assume an increase in line with the RPI on top of that. The odds against the former feel long. I reckon an RPI increase on top is about as likely as my winning the National Lottery. And I don’t play the Lottery.15
7. When it was put to the Treasury’s Permanent Secretary that the continued underlying assumption was a “mockery of forecasting”, given that rises in duty were assumed but never materialised, Mr Bowler replied that it was “a reasonable point”.16
8. The repeated failure of Governments to follow their own stated policy on fuel duty undermines the credibility of the OBR’s fiscal forecasts.
9. We recommend that the Treasury, for the purposes of providing the OBR with a policy assumption for future forecasts, should assume there will be no inflation-linked rise in fuel duty over the forecast horizon. This would more accurately reflect the recent path of fuel duty and make for a more credible forecast. As ever, the Chancellor would be free to propose changes in duty rates at fiscal events.
Harriett Baldwin, in the Chair
Rushanara Ali
John Baron
Dame Angela Eagle
Emma Hardy
Danny Kruger
Alison Thewliss
Draft Report (Fuel Duty: Fiscal forecast fiction) proposed by the Chair, brought up and read.
Ordered, That the Report be read a second time, paragraph by paragraph.
Paragraphs 1 to 9 read and agreed to.
Resolved, That the Report be the Eleventh Report of the Committee to the House.
Ordered, That the Chair make the Report to the House.
Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.
Adjourned till Tuesday 24 January at 9.30 am.
The following witnesses gave evidence. Transcripts can be viewed on the inquiry publications page of the Committee’s website.
Sir Tom Scholar, Permanent Secretary, HM Treasury; Charles Roxburgh, Second Permanent Secretary, HM Treasury; Cat Little, Director General, Public Spending, HM Treasury; Anna Caffyn, Finance Director, HM TreasuryQ1–98
James Bowler CB, Permanent Secretary, HM Treasury; Beth Russell, Second Permanent Secretary, HM Treasury; Cat Little, Second Permanent Secretary, HM Treasury; Anna Caffyn, Finance Director, HM Treasury; Phil Duffy, Director-General, Growth and Productivity, HM TreasuryQ99–226
All publications from the Committee are available on the publications page of the Committee’s website.
Number |
Title |
Reference |
1st |
Future of financial services regulation |
HC 141 |
2nd |
Future Parliamentary scrutiny of financial services regulations |
HC 394 |
3rd |
The appointment of Dr Swati Dhingra to the Monetary Policy Committee |
HC 460 |
4th |
Jobs, growth and productivity after coronavirus |
HC 139 |
5th |
Appointment of Marjorie Ngwenya to the Prudential Regulation Committee |
HC 461 |
6th |
Appointment of David Roberts as Chair of Court, Bank of England |
HC 784 |
7th |
Re-appointment of Sir Dave Ramsden as Deputy Governor for Markets and Banking, Bank of England |
HC 785 |
8th |
Autumn Statement 2022 - Cost of living payments |
HC 740 |
9th |
Appointment of Ashley Alder as Chair of the Financial Conduct Authority |
HC 786 |
10th |
The work of the Sub-Committee on Financial Services Regulations |
HC 952 |
1st Special |
Defeating Putin: the development,implementation and impact of economic sanctions on Russia: Government Response to the Committee’s Twelfth Report of Session 2021–22 |
HC 321 |
2nd Special |
Future of financial services regulation: responses to the Committee’s First Report |
HC 690 |
3rd Special |
Jobs, growth and productivity after coronavirus: Government response to the Committee’s Fourth Report |
HC 861 |
Number |
Title |
Reference |
1st |
Tax after coronavirus: the Government’s response |
HC 144 |
2nd |
The appointment of Tanya Castell to the Prudential Regulation Committee |
HC 308 |
3rd |
The appointment of Carolyn Wilkins to the Financial Policy Committee |
HC 307 |
4th |
The Financial Conduct Authority’s Regulation of London Capital & Finance plc |
HC 149 |
5th |
The Future Framework for Regulation of Financial Services |
HC 147 |
6th |
Lessons from Greensill Capital |
HC 151 |
7th |
Appointment of Sarah Breeden to the Financial Policy Committee |
HC 571 |
8th |
The appointment of Dr Catherine L. Mann to the Monetary Policy Committee |
HC 572 |
9th |
The appointment of Professor David Miles to the Budget Responsibility Committee of the Office for Budget Responsibility |
HC 966 |
10th |
Autumn Budget and Spending Review 2021 |
HC 825 |
11th |
Economic crime |
HC 145 |
12th |
Defeating Putin: the development, implementation and impact of economic sanctions on Russia |
HC 1186 |
1st Special |
Net Zero and the Future of Green Finance: Responses to the Committee’s Thirteenth Report of Session 2019–21 |
HC 576 |
2nd Special |
The Financial Conduct Authority’s Regulation of London Capital & Finance plc: responses to the Committee’s Fourth Report of Session 2021–22 |
HC 700 |
3rd Special |
Tax after coronavirus: response to the Committee’s First Report of Session 2021–22 |
HC 701 |
4th Special |
The Future Framework for Regulation of Financial Services: Responses to the Committee’s Fifth Report |
HC 709 |
5th Special |
Lessons from Greensill Capital: Responses to the Committee’s Sixth Report of Session 2021–22 |
HC 723 |
6th Special |
The appointment of Professor David Miles to the Budget Responsibility Committee of the Office for Budget Responsibility: Government response to the Committee’s Ninth Report |
HC 1184 |
7th Special |
Autumn Budget and Spending Review 2021: Government Response to the Committee’s Tenth Report |
HC 1175 |
8th Special |
Economic Crime: responses to the Committee’s Eleventh Report |
HC 1261 |
Number |
Title |
Reference |
1st |
Appointment of Andrew Bailey as Governor of the Bank of England |
HC 122 |
2nd |
Economic impact of coronavirus: Gaps in support |
HC 454 |
3rd |
Appointment of Richard Hughes as the Chair of the Office for Budget Responsibility |
HC 618 |
4th |
Appointment of Jonathan Hall to the Financial Policy Committee |
HC 621 |
5th |
Reappointment of Andy Haldane to the Monetary Policy Committee |
HC 620 |
6th |
Reappointment of Professor Silvana Tenreyro to the Monetary Policy Committee |
HC 619 |
7th |
Appointment of Nikhil Rathi as Chief Executive of the Financial Conduct Authority |
HC 622 |
8th |
Economic impact of coronavirus: the challenges of recovery |
HC 271 |
9th |
The appointment of John Taylor to the Prudential Regulation Committee |
HC 1132 |
10th |
The appointment of Antony Jenkins to the Prudential Regulation Committee |
HC 1157 |
11th |
Economic impact of coronavirus: gaps in support and economic analysis |
HC 882 |
12th |
Tax after coronavirus |
HC 664 |
13th |
Net zero and the Future of Green Finance |
HC 147 |
1st Special |
IT failures in the financial services sector: Government and Regulators Responses to the Committee’s Second Report of Session 2019 |
HC 114 |
2nd Special |
Economic Crime: Consumer View: Government and Regulators’ Responses to Committee’s Third Report of Session 2019 |
HC 91 |
3rd Special |
Economic impact of coronavirus: Gaps in support: Government Response to the Committee’s Second Report |
HC 662 |
4th Special |
Economic impact of coronavirus: Gaps in support: Further Government Response |
HC 749 |
5th Special |
Economic impact of coronavirus: the challenges of recovery: Government Response to the Committee’s Eighth Report |
HC 999 |
6th Special |
Economic impact of coronavirus: gaps in support and economic analysis: Government Response to the Committee’s Eleventh Report |
HC 1383 |
1 HC Deb, 19 December 2022, col 6WS; Letter to the Chair of the Treasury Committee from the Chair of the Office for Budget Responsibility, Potential Emergency Budget, 26 August 2022
2 Duties charged per litre of unleaded petrol and diesel, under s6 of the Hydrocarbon Oil Duties Act 1979
3 For a detailed narrative, see House of Commons Library, Research briefing: Taxation of road fuel, By Antony Seely, Published 24 June 2022
4 HC Deb, 16 March 1993, col 183
5 HC Deb, 9 November 1999, cols 889–890
6 HM Treasury, Pre-Budget Report, Cm 4479, November 1999, para A33
7 HM Treasury, Pre-Budget Report, Cm 6408, December 2004, para 7.32
8 HM Treasury, Budget 2009, 22 April 2009, para 1.36
9 HM Treasury, Budget 2011, 23 March 2011, para 1.146
10 Oral evidence taken on 22 November 2022, HC (2022–23) 740, Q345, and most recently HM Treasury, Autumn Statement 2022: Policy Costings, November 2022, Annex A
11 HM Revenue and Customs, Historical hydrocarbon oils duty rates, Updated 28 October 2022
12 HM Treasury, Spring Statement 2022, para 2.13, p24. The temporary reduction was given statutory effect by the Excise Duties (Surcharges or Rebates) (Hydrocarbon Oils etc.) Order 2022.
13 Office for Budget Responsibility, Economic and Fiscal Outlook, November 2022, p52
14 Office for Budget Responsibility, Economic and Fiscal Outlook, November 2022, pp52–53
15 Institute for Fiscal Studies, Spring Statement 2022: Paul Johnson’s opening remarks, 24 March 2022