Chancellor Rachel Reeves has difficult decisions to make this October and in the Spring’s Comprehensive Spending Review. Against the backdrop of a challenging economic inheritance, choosing spending and tax commitments that will support Britain’s dash for growth and deliver on Labour’s promised ‘decade of renewal’ is an unenviable position to be in. Thankfully, transport provides two key fiscal and spending opportunities that, if done right, can advance Labour’s missions. Raising fuel duty and reallocating funds from new road projects should provide more funding for improving people’s ability to get around and access what they need.
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The fuel duty freeze is a tax cut that is poorly targeted at helping hard-working families and incompatible with the UK’s climate goals. It is also a bugbear of economists of all political stripes as it represents ‘a fiscal forecast fiction’. Government forecasts are based on fuel duty rising with inflation each year, in the same way as rail fares, but it hasn’t gone up since 2011. In 2022, the Conservatives went further by introducing a 5p cut. If fuel duty remains frozen, then government receipts in 2029-30 could be £6bn lower than current government forecasts – a figure roughly three times the amount currently spent supporting England’s bus services.
Freezing fuel duty is sold as a boon to ordinary people but has only put £13 a month into the pockets of the average household, at a cumulative cost of at least £80bn. It disproportionately benefits the wealthiest, who tend to drive the most, and does nothing for those without a car, who are the most likely to be living on low incomes. It is also estimated to have led to carbon emissions 7% higher than they would have been without a freeze. This policy is not fair and not sustainable. The fuel duty cut should be reversed.
Let’s not pretend this will be universally popular. Many have no choice but to drive and cost of living remains the public’s key concern. However, fuel prices are falling to a three year low and some motoring groups are now reconciled to a fuel duty increase. To cushion the impact and link the revenue to government providing better public services, some of the money raised should be earmarked for making affordable and sustainable transport available to more people. This could include supporting schemes that allow those on low incomes with no alternatives to driving, such as rural care workers, to be able to make the switch to an electric vehicle.
Long term, as electric vehicles become the norm, the country needs a new approach to motoring taxation. Many call for a form of road pricing, where drivers are charged per mile, alongside taxes that curtail the rise in over-sized vehicles. These are sensible proposals. Given this change would touch the lives of a significant proportion of the population, the public should be given a say in their design.
Labour have inherited a shambles of transport policies and projects. Network North, the previous government’s cobbled together plan to spend HS2 savings, contained projects that had already been completed and ones that didn’t exist. Among this chaos, the chancellor has already found savings by scrapping some low value for money road schemes. She has scope to go further.
