Report says UK could face fuel tax hike over £13 billion deficit

DRIVERS could face a 50% rise in fuel duty in future years to cover a £13 billion hole in Treasury coffers, a report said today.

And the document, prepared for the RAC Foundation by the Institute for Fiscal Studies, said there is a “compelling” case for road charging in the UK rather than the current system funded by taxes on fuel.

The gap in public finances will come from increasing use of more fuel-efficient cars and a switch to electric vehicles, it is claimed.

The report added that although the fuel duty collected by the Exchequer stands at 1.7% of gross domestic product (GDP), this rate will tumble to 1.1% of GDP by 2029.

The report said vehicle excise duty (VED) would also drop over this period, from 0.4% of GDP to 0.1%, with the combined dip leading to the £13bn shortfall.

RAC Foundation director Professor Stephen Glaister said: “If the Chancellor was faced with a £13bn shortfall in motoring tax revenue today, he would need to push the rate of fuel duty up from 58p per litre to 87p per litre to fill the financial black hole.

“The irony is that while ministers encourage us to buy greener, leaner cars, they are being forced to look at ways of clawing back the money motorists think they will be saving.

“This isn’t scaremongering. The Treasury has already announced a review of VED bands to ensure drivers make a fair contribution to the public finances.”

Institute director Paul Johnson said: “A national system of charging related to mileage and congestion, largely replacing the current system of fuel taxation, would help solve both those problems.”