The true costs of fuel duty

Over the weekend France was brought to a standstill by the ‘gilets jaunes’. Named for the yellow vests that drivers have to carry in their cars in case of an accident, the movement brought over 200,000 motorists to the streets to protest against fuel duty rises. It reminded me of events in Britain in 2000, when fuel duty protests brought the country to the brink of crisis.

The cost of motoring is a highly contentious issue. People notice rising costs, they resent them as they fill up their cars, and they are willing to take action if they feel the government is putting too much pressure on prices.

It’s easy to see then why the British government chooses to press the pause button on fuel duty. Year after year the chancellor makes his budget speech, and makes a show of freezing it again. It usually comes towards the end and next to an announcement that beer will be cheaper, in the hope that the tabloids will celebrate it on their front pages the following day. True to form, Chancellor Hammond recently boasted that “we will freeze fuel duties for the ninth successive year” and then turned his attention to “keeping the cost of beer down for patrons of the Great British Pub.”

Perhaps this long freeze on fuel duty is sparing us from protests like those in France, but they have a cost of their own. The whole point of fuel taxes is to price in the damage of cars and encourage more sustainable forms of transport. Cutting or freezing fuel taxes has the opposite effect: it encourages people to drive, and delays the transition to cleaner transport. Campaign group Greener Journeys recently calculated the various consequences of the fuel duty freeze:

  • By keeping the cost of motoring down, more people are driving and traffic has increased by 4%, with all the congestion and pollution that follows.
  • That increase in traffic has meant 4.5 million extra tonnes of CO2.
  • When driving is cheap, people choose their car rather than public transport – altogether this rise in traffic represents 60 million fewer rail journeys and 200 fewer bus journeys, with a decline in public transport usage and revenue.
  • From 2011 to 2017, the treasury has foregone £46 billion in revenue, money that could have been spent improving and promoting sustainable transport.

As I’ve pointed out before, transport is the one sector where Britain’s greenhouse gas emissions continue to rise. The failure to address car culture is the main reason, and the fuel duty freeze is exhibit number one. It is a very direct message from government to keep driving, and it puts our climate change targets at risk.

So what should be done? The government acknowledges that it can’t hold petrol taxes down forever, and has warned that it will have to start raising them again from 2019. It is highly likely to chicken out on the day, especially since the motoring lobby will be reminding them of events in France this week.

My answer would be to scrap the fuel tax altogether, and introduce a carbon tax and rebate scheme instead. I’ve written about Alberta’s carbon tax before, and a similar scheme now applies across the whole of Canada. It works like this: a small levy is added to the price of oil, coal and gas. 90% of the revenue raised is then given back to citizens as a rebate. It’s calculated so that most ordinary people break even or end up better off. Those who use a lot of energy pay more, while those who use very little energy get a free bonus. There are exemptions to avoid penalising anyone, with the remaining 10% of revenue used to support schools, rural areas and small businesses.

I think this is what Britain should do instead of fuel duty, along with wider use of congestion charge zones and road pricing to capture the full cost of motoring. We could sidestep the looming political showdown over fuel duty, and create a scheme that is progressive, comprehensive, and proven elsewhere. If it applies to gas and coal too, it would encourage greater efficiency and renewable heat, dealing with domestic energy use as well as transport. People would be directly rewarded for cutting their energy use and choosing to drive less, and giving the money back to citizens could make it a green tax that is actually popular.

Now, can you help me pick holes in that idea before I start writing to the chancellor?


  1. Interesting points. Correct me if I’m wrong does the UK now already have a carbon tax scheme? I know the EU’s ETS is a trading scheme but there’s also the carbon price floor.

    1. Of sorts – the carbon price floor is a top-up mechanism added to the ETS system. It’s paid by energy producers rather than consumers, so it incentivises renewable energy at the industry level. A carbon levy of the kind I’m proposing would affect ordinary folks and their use of energy and fuels, and reward them for choosing lower carbon.

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