Treasury Committee: Fuel duty fiction clouds fiscal forecasts
23 January 2023
The Treasury Committee today points out the fiscal fiction that clouds fuel duty forecasts.
In a new report, the Committee examines the long-standing Treasury policy assumption that fuel duty will rise with inflation. This assumption is used by the independent Office for Budget Responsibility (OBR) as a basis for its fiscal forecasts, which highlight the health of the nation’s finances. The OBR is currently preparing its forecast, which will be delivered alongside the Budget in March.
Currently, it is the Treasury’s policy to increase fuel duty in line with inflation each year. Because it is official Government policy, the OBR assumes that an annual inflation-linked increase to fuel duty will occur.
However, since 2011, successive Chancellors have entirely refrained from raising fuel duty. In the 2022 Spring Statement, the Treasury announced a 5p per litre cut to fuel duty for 12 months.
Because Governments have consistently not raised fuel duty with inflation, despite such an increase being part of the Treasury’s underlying policy assumptions, the OBR considers fuel duty a risk to its fiscal forecast.
In the report, the cross-party Committee of MPs states that the repeated failure of Governments to follow their own policy on fuel duty undermines the credibility of the OBR's fiscal forecasts.
The MPs recommend the Treasury should assume there will be no inflation-linked rise in fuel duty when providing the OBR with a policy assumption for future forecasts. This would more accurately reflect the recent path of fuel duty and make for a more credible forecast.
Such an action would not prevent the Chancellor from proposing changes to the rate of fuel duty at future fiscal events.
Commenting on the report, Harriett Baldwin MP, Chair of the Treasury Committee, said:
“Over the past twelve months we’ve seen first-hand the importance of the forecasts provided by the independent Office for Budget Responsibility. After years of fiscal forecast fiction, it’s time for the Government to more accurately reflect the actual path of fuel duty. Doing so would enable the OBR to produce a more credible forecast.”