UK Treasury faces £15 billion black hole by 2029 due to fuel duty freeze and rise of electric vehicles
A decade of frozen rates takes a toll
Successive Conservative governments have maintained a freeze on fuel duty since 2011, a policy that has proven popular with drivers but financially unsustainable. While this policy initially benefited drivers by an average of £13 per month, it has significantly eroded government revenue. According to the Office for Budget Responsibility (OBR), fuel duties accounted for 4.5% of total receipts in 2011, but this figure has shrunk to a mere 2.4% by 2023.
The OBR further warns that if the freeze continues, fuel duty revenue will peak at £24.7 billion in 2025 and then go into permanent decline. This translates to a potential loss of £15 billion between 2024 and 2029 compared to a scenario with rising fuel duty rates.
The challenge of electric vehicles
The rise of EVs poses another significant threat to fuel duty revenue. As the UK pushes towards its net-zero emissions target by 2050, EV adoption is expected to accelerate rapidly. Experts like Carl Emmerson of the Institute for Fiscal Studies warn that this could lead to the complete collapse of the fuel duty tax base in the long run.
Beyond the financial loss
Critics of the fuel duty freeze argue that it not only harms the government’s finances but also hinders progress on environmental goals and widens regional inequalities. Think tanks like the Social Market Foundation (SMF) point out that the freeze disproportionately benefits wealthier households who can afford cars and discourages investment in public transport infrastructure. The SMF estimates that the freeze since 2011 has resulted in over £100 billion in foregone revenue, which could have been used to improve bus services and rail networks, particularly in rural areas. Additionally, the SMF argues that the freeze incentivizes car use, potentially contributing to higher CO2 emissions.
