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Chancellor urged to freeze fuel duty forever

Business group Logistics UK is calling on government to freeze fuel duty forever to help the sector make the shift to alternatively fuelled vehicles.

15 October 2021

Chancellor urged to freeze fuel duty forever

Government spending plans are to be set out at the Spending Review on 27th October alongside the Autumn Budget.

David Wells, Chief Executive of Logistics UK argues that the logistics sector needs more support to switch to alternative fuels: “As the logistics industry recovers from the impact of the pandemic on the economy, and with the threat of price inflation on the horizon, every penny counts for our sector, which traditionally runs on extremely narrow margins.

“While our members are committed to switching to cleaner alternative fuels from diesel, the cost of a new alternatively fuelled HGV makes them challenging for many businesses – despite government grants of up to £25,000 – when, at present, businesses must allow for higher operating costs, leaving less spare cash for investment.

“Our industry needs a confirmation from government that fuel duty will not be used as a tool to close budgetary gaps in the economy.  This will help our member businesses to allocate more funds to the vehicle replacement cycle, secure in the knowledge that they will not be surprised by unexpected duty hikes in the coming months or years.”

Driver wage increases

Diesel is one of the single biggest running costs in operating a large fleet of HGVs: Logistics UK research indicates that fuel accounts for more than 30% of HGV’s operating costs. Many logistics businesses are currently facing increased costs due to spiralling drivers’ wages, caused by the current skills shortage.

“With margins pared down to a minimum,” continued Mr Wells, “and inflationary pressure set to bite over the autumn, a guaranteed, permanent freeze on fuel duty would allow our members to recover from the impact of the pandemic and start to focus on how best to make the switch to alternative fuels on the road to Net Zero.”

Is fuel duty likely to rise?

The Chancellor is understood to have seriously considered an increase before his 2020 budget, keen to send a signal about the UK government’s green agenda.

The Treasury also considered a rise of up to 5p a litre from March 2021 on the assumption that the UK would be back to somewhere near normal transport use.

The decision not to increase fuel duty in 2020 and Spring 2021 means it has been frozen for 10 years at 58p a litre.

A rise in future years is seen as inevitable. As more motorists switch to electric cars, there will be a steep fall in the Treasury’s revenues unless it increases the duty.

A previous letter to Sunak from 26 MPs, organised by the campaign Fair Fuel, said “any potential rise would disproportionately impact the lower paid and workers outside of London” and pointed to the Prime Minister’s pledge in 2019 not to raise the tax.

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