Policy Exchange: Government must act to stem £170bn loss in fuel duty tax receipts

The Government must consider how it will recover a forecasted £170bn hole in lost fuel duty tax receipts if the UK remains on course to hit the energy targets set out in the Fifth Carbon Budget, a new report from think tank Policy Exchange has warned.

Policy Exchange has called upon Ministers to develop a technology-neutral strategy that involves new technologies such as hydrogen and natural gas vehicles

Policy Exchange has called upon Ministers to develop a technology-neutral strategy that involves new technologies such as hydrogen and natural gas vehicles

Policy Exchange analysis hints that fuel duty tax receipts would be £27-31bn per year in 2030 if the UK hits its 2030 target of cutting emissions by 57% compared to 1990 levels. These estimated figures are significantly lower than the £40bn that the Office for Budget Responsibility suggests could be raised.

Policy Exchange claims that none of OBR scenarios achieve the emissions targets suggested by the Committee on Climate Change (CCC). The think tank suggests that a road-user charging system based on toll roads and congestion charges in cities could be more effective than fuel taxes in the long-term.

“The Government needs to recognise the fiscal implications of cleaning up road transport,” Policy Exchange’s head of energy and environment Richard Howard said.

The report highlights “worrying” concerns about the Government’s failure to deal with the “twin problem” of carbon emissions and air pollution. This comes on the same day that industry professionals warned that the Fifth Carbon Budget target is at risk because of Government dithering on energy policy.

Greenhouse gas (GHG) emissions from the transport sector have increased by 1% since 1990, while the majority of other sectors of the economy have fallen. Meanwhile, illegal levels of air pollution have been reported in London and other major cities across the UK.  

Howard said: “The new Government needs to take more assertive action to address the twin problems of carbon emissions and air pollution from road use. As it stands, there is no overarching Government strategy to deliver the required reduction in GHG emissions, and the latest plan to reduce NOx emissions is inadequate.”

Let the market decide

The Government should scrap the EU target for 10% renewable transport fuels by 2020, according to Policy Exchange, which claims that the uptake of low-emission vehicles should be decided by market forces rather than state intervention.

Policy Exchange has called upon Ministers to develop a technology-neutral strategy that involves new technologies such as hydrogen and natural gas vehicles. The think tank welcomes the Government’s reiterated support for autonomous electric vehicles (EVs) confirmed in last week’s Queen’s Speech.

The Speech included a proposal to build the EV market by improving national charging and hydrogen refuelling infrastructure. EV charging infrastructure must by “smart” and “controllable” to minimise the impacts on the power system, the Policy Exchange report contends.  

EV growth

A number of statistics are painting the picture of exponential growth of the EV market. The global number of EV cars on the road rose to two million in 2016, with 40% of all sales made in China alone. The International Energy Agency has claimed that the number of electric car sales needs to reach 600 million by 2040 in order to limit world temperature increase to below 2C.

In Europe and the US, electric vehicles (EVs) will be used to help balance the grid. Last week’s Bloomberg New Energy Finance (BNEF) report estimated that EVs will account for around 13% of electricity generation in these two areas by 2040 and will help the system adapt to the variable nature of renewables. The growth of EVs will also reduce the costs of lithium-ion batteries by more than 70% by 2030 and will likely represent 35% of all new car sales.

George Ogleby


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