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Spring Budget: Chancellor's focus is on tax cuts

Fuel Duty may have been frozen, but the transport sector feels that it has been left out in the cold when it comes to funding

Mark Moran
06 March 2024
Jeremy Hunt

 

Fuel Duty was frozen and Air Passenger Duty was increased on business class tickets, but transport and infrastructure investment barely featured in the Spring Budget statement made by Chancellor of the Exchequer today.

Instead, in what is an election year, Hunt focussed on delivering some heavily telegraphed cuts to National Insurance, revisions to the High Income Child Benefit Charge and the scrapping of tax breaks for wealthy ‘non-domiciled’ residents.

The Energy Profits Levy sunset clause on North Sea oil and gas production will be extended from March 2028 to March 2029 to raise £1.5bn a year, but legislation in the Finance Bill will abolish the levy if market prices fall to their historic norm sooner than expected.

Jeremy Hunt had little to say on active travel or passenger transport infrastructure investment, nor regarding supporting the transition to electric vehicles.

Against a backdrop of concerns about the stresses being placed on local authority finances, day-to-day public spending will continue to increase by 1% higher than inflation on average over the next parliament, as the chancellor confirmed spending levels will not be cut.

Hunt announced a Public Sector Productivity Plan that will seek to improve public service delivery through using better technology to free frontline workers from time-consuming admin and make earlier interventions that reduce costs later down the line.

The chancellor claimed his 'Budget for Long Term Growth' will deliver lower taxes, improve public services and grow investment, increasing size of economy by 0.2% in 2028-29 and meeting fiscal rules.

Fuel Duty frozen

Fuel Duty has been frozen again, with the 5p cut in the tax paid on petrol and diesel, due to end later this month, kept for another year. HM Treasury said the average car driver will save £50 this year as the 5p cut and freeze to fuel duty is maintained until March 2025.

In his speech, Hunt painted himself as a friend of the motorist. Following an aside about the cost of London’s Ultra Low Emission Zone (ULEZ), Hunt said: “Lots of families and sole traders depend on their car. If I did nothing Fuel Duty would increase by 13% this month. So instead, I have listened again to my RHFs for Stoke-on-Trent North, Dudley North, Witham and others, as well as the Sun newspaper’s ‘Keep it Down’ campaign.

“I have as a result decided to maintain the 5p cut and freeze Fuel Duty for a further 12 months. This will save the average car driver £50 next year and bring total savings since the 5p cut was introduced to around £250.”

The pausing of a move on fuel duty was welcomed by business and motoring bodies. Kevin Green, Logistics UK’s director of policy, said: “The extension to the 5p per litre cut in Fuel Duty announced by the chancellor in today’s Budget is good news for the logistics sector, at a time when the industry is facing increasing cost pressures from rising wage and fuel costs. Logistics powers every part of the economy, and an increase in operating costs at this time caused by the reversal of the Fuel Duty cut could have caused disastrous inflationary pressure on the economy. Maintaining the Fuel Duty cut will provide logistics businesses with more certainty as they drive the transition to a greener economy.”

Speaking for road hauliers, Paul Mummery, head of news and media at RHA, said: “We are pleased to see the chancellor has listened to our calls to help haulage, coach and van businesses in his Spring Budget. Continuing the freeze on Fuel Duty and maintaining the 5p-cut for a further 12 months will help firms deal with economic challenges.”

Looking at the Budget from the perspective of drivers, Steve Gooding, director of the RAC Foundation, said: “For all the focus on electric vehicles, 97% of cars on the UK’s roads run on petrol or diesel so the cost of filling up at the forecourt is a daily worry for tens of millions of people, not to mention businesses. This freeze is welcome but comes against a backdrop of oil prices, and hence pump prices, creeping back up over the past couple of months. Even as it stands the chancellor is still getting more than 50% of what drivers spend on the garage forecourt in vehicle excise duty and VAT combined.”

The AA's head of roads policy, Jack Cousens, welcomed the news: “Even with the intense pressure to balance the UK’s books, now is not the time to rev up motoring costs for workers and families who rely on their cars to go about their daily lives – and stoke inflation. The AA therefore welcomes the 12 month freeze in Fuel Duty, despite the benefit felt being halved from its introduction.”

RAC head of policy Simon Williams said: “With a general election looming, it would have been a huge surprise for the chancellor to tamper with the political hot potato that is Fuel Duty in today’s Budget. It appears the decision of if or when duty will be put back up again has been quietly passed to the next government. But, while it’s good news that fuel duty has been kept low, it’s unlikely drivers will be breathing a collective sigh of relief as we don’t believe they’ve fully benefited from the cut that was introduced just two years ago due to retailers upping margins to cover their ‘increased costs’. This has meant fuel prices have been higher than they would otherwise have been. What’s more, despite today’s positive news it’s still the case that drivers are once again enduring rising prices at the pumps, sparked by the oil price going up – the average cost of a litre is already up by more than 4p since the start of the year.”

Silviya Barrett, director of policy and research at the Campaign or Better Transport, said she was disappointed but not entirely unsurprised. “It was rumoured that the chancellor would once again freeze Fuel Duty in a ‘boost’ to drivers, and the rumours were true. Well, sort of. The chancellor did indeed continue the freeze in Fuel Duty since 2011 and the 5p additional cut introduced in 2021 as a ‘temporary’ relief for high fuel costs – despite prices at the pumps long since returning to normal. But is this really a boost to drivers? By the government’s own admission, this would save the average driver only £50 across the year. However, put it all together, and maintaining the 5p cut and continuing the freeze on fuel duty will cost the Treasury a further £4.2bn in lost revenue over the next year.”

The Social Market Foundation (SMF), a non-partisan think tank, was sceptical about the claimed benefits of latest fuel duty freeze. SMF senior researcher Gideon Salutin said: “The only thing this freeze will fuel is more inequality. From today’s Fuel Duty freeze alone, the richest tenth of households in the UK will save an extra £60 a year, while the poorest receive only £22. The rhetoric around Fuel Duty focuses on the 'families and sole traders' it supposedly protects from poverty. But after spending £130bn on cuts and freezes over the past thirteen years, the policy has only decreased the average household’s motoring costs by £13 a month. Achieving a more meaningful reduction in transport expenses requires the government to invest in cheaper, greener alternatives like public transport and electric vehicles, but today’s Budget did little to enhance those options for low income households.”

Lack of energy on electric vehicles

Hunt extended the windfall tax on the profits of North Sea oil and gas companies by a year, raising an expected £1.5bn. The tax was introduced in May 2022 after Russia’s full-scale invasion of Ukraine sent gas prices soaring, feeding through to producers’ profits. It was due to end in March 2028, but will now conclude in 2029.

The chancellor confirmed the government will spend £160m on two nuclear sites. The first, on the island of Anglesey or Ynys Môn, is the Wylfa facility in north Wales which is owned by Japan’s Hitachi. The government hopes to find a partner to develop a nuclear power station there. The Oldbury site in South Gloucestershire is also part of the agreement.

Hunt also allocated £120m for green industries to develop technologies including offshore windfarms and carbon capture and storage projects.

Ahead of the Budget, the UK automotive industry has called for fairer EV taxation as fleets continue to drive growth, while private EV uptake declines. The Society of Motor Manufacturers & Traders (SMMT) had argued a faster, market transition depends on more private buyers switching but the lack of significant incentives is holding back many.

The SMMT had seen the budget is an opportunity for the chancellor to stimulate demand by halving VAT on new EVs for three years, amending proposed Vehicle Excise Duty (VED) changes, and reducing VAT on public charging in line with home charging. While consumers do not pay VAT on other emission reduction technologies such as heat pumps and solar panels, private EV buyers pay the full 20% levied on all cars, whether they be electric, petrol or diesel.

Following the budget, SMMT chief executive Mike Hawes expressed his disappointment: "Today’s Budget is a missed opportunity to deliver fairer tax for a fair transition. With both government and industry having statutory requirements to deliver net zero, more still needs to be done to help consumers make the switch.”

Quentin Willson, founder of the FairCharge campaign, has been arguing for a VAT cut on public charging for some time. Willson said: “‘FairCharge is staggered that the chancellor is prepared to spend £5bn on a Fuel Duty freeze and continuation of the 5p cut, yet won’t spend 125th of that – circa £40m – on cutting the VAT on public EV charging. Drivers may not see the 5p cut passed on at the pumps but charge point operators say they would pass on any reduction in VAT directly to consumers. And cutting VAT on public charging could save EV drivers up to £1,300 over 10,000 miles, helping them with zero tailpipe emissions. Why wouldn’t you support a drive for cleaner air in our towns and cities? Might it have something to do with an election, we wonder.”

James Court, chief executive of EVA England, an association for electric vehicle owners, was also disappointed. He said: "This year's Spring Budget is a missed opportunity by the government to support an EV sector that is on the cusp of mass uptake. Without targeted schemes to make EVs more affordable for the average consumer, all of our immense progress so far risks failing to hit the mark of our rightly ambitious net zero targets. Highly successful social leasing and targeted grant schemes are being implemented elsewhere, incentivising yet more drivers to make the switch, and this government has failed to keep up with this momentum."

James Taylor, managing director of Vauxhall, commented: “Today’s Spring Budget has not delivered the acceleration needed to stop the UK’s transition to electric vehicles from stalling. If we are to meet the rightly ambitious targets laid out in the government’s Zero Emission Vehicle mandate (80% of all cars sold to be electric by 2030) then there needs to be incentives for private car buyers to make the switch to electric as there are in the majority of European nations. 

“Vauxhall will already offer its entire car and van line-up as electric by the end of this year and has a number of highly competitive offers available but we cannot drive demand alone. Whilst there are strong incentives for company car drivers to make the switch to electric – including for those choosing luxury vehicles – the private buyer who wants a more attainable small or family car receives nothing. 

“Furthermore, if you can charge your electric vehicle at home with off-street parking then you will pay 5% VAT on your electricity. If you don’t have a driveway and rely on public chargers then you will pay 20% VAT on your electricity. We support the FairCharge campaign for a fairer taxation on charging. We would call on the chancellor to urgently set up purchase incentives to stimulate the electric vehicle market and review the unfair taxation on public charging so that the UK isn’t left behind in the race to more sustainable motoring.”

Transport sidelined

The Transport Planning Society (TPS) said it was disappointed to see the chancellor overlook the role of sustainable transport in stimulating economic growth and improving people's lives. TPS policy director Tom van Vuren said: In times of economic instability, sustainable modes can be crucial to connect people to jobs and education and often act as the only means of travel for the most disadvantaged. The chancellor’s budget overlooked how transport can tackle many of the economic burdens the country is facing. As we approach the general election the chancellor should offer the support and clarity the transport industry needs to grow, improve and decarbonise.

“Active travel was featured in our manifesto published last year. We called for investment into safe and secure active travel routes. It was disappointing to see active travel investment completely absent from the Spring Budget.

“We explored the importance of a strategic parking policy to complement the industry's wider goals in our paper Just the Ticket! Parking Policy for Lower Carbon Travel, published last year. We would have liked the chancellor to adopt some of the initiatives we assessed, most notably workplace parking levies that have been utilised so effectively in Nottingham, to generate the necessary funding for transport investment and maintenance of existing assets.

“The UK’s current economic situation requires certain economic levers to raise revenue. We would have liked the chancellor to consider the reinstatement of the fuel duty escalator. Freezing the Fuel Duty will forego at least £5bn per year, benefiting mainly the rich, who drive the most, and doing very little for the poorest in society, who don’t tend to own a car. IPPR analysis indicates the most disadvantaged drivers spend more than 20% of their income on running a car.

“Continuing the Fuel Duty freeze for another 12 months is discouraging but not surprising. But, if the chancellor wants to increase tax revenue and simultaneously reduce emissions and congestion reintroducing some form of the fuel price escalator would be very powerful. Any revenue raised could be reinvested into major infrastructure schemes which have been neglected since the cost of living crisis.

We were encouraged to see the chancellor increase air passenger duty for all non-economy flights. We hope this is a first step to incentivising sustainable forms of transport for all long-distance journeys where possible. Further measures could include, for example, the Campaign for Better Transport’s ‘Super Rate’ of Air Passenger Duty on private jet passengers. This is estimated to be able to raise roughly £1.4bn every year.”

Responding to the Budget, Paul Tuohy, chief executive of the Campaign for Better Transport, said: By once again choosing to keep the 5p fuel duty cut and continue freezing fuel duty for another year, the chancellor has committed to costing the Treasury a further £4.2bn in lost revenue. Together this revenue would be enough to triple support for bus services across England and freeze rail fares for more than three years, positively impacting millions of public transport users and driving economic growth. Instead, the government continues with retrograde measures that will do nothing to help those who have seen their bus services disappear, their rail fares rise and congestion blight their communities. It’s about time the Treasury reconsidered its priorities when it comes to transport.”

Reaction from transport trade unions was not positive. RMT general secretary Mick Lynch said: This is a budget of tax cuts and gimmicks designed to thinly disguise a Tory government only interested in propping up the super rich. The only way you get real growth that benefits working people is by investment in publicly owned public services, transport infrastructure and a general wage rise to increase spending power in the economy. This can be paid for by windfall taxes on big business profits and taxing the super rich to unlock wealth and distribute it more evenly across society. We need a general election as soon as possible in order to give the electorate the opportunity to vote this Tory government out of office.

Nothing for active travel

The Spring Budget contained no mention of cycling or walking, to the disappointment of Cycling UK. Sarah McMonagle, Cycling UK's director of external affairs, said: “The government is repeating its long-running mistake of under-funding and short term thinking on sustainable transport. The National Audit Office (NAO) told the government last year it wasn’t investing enough to meet its own 2025 targets for walking and cycling, even before it slashed dedicated funding for active travel by two[-thirds last March.

“This financial black hole, coupled with the stop-start nature of funding, is preventing local authorities from investing in cycling and walking schemes that we know create green jobs, boost economic growth and make our streets safer, in addition to the many health, wellbeing and environmental benefits.

“Instead, the chancellor has made another short-term focused decision to extend the Fuel Duty freeze, a poor value for money policy that has been shown to disproportionately benefit the wealthiest in society. It’s time the government took a long-term, integrated approach to transport policy, investing to give people more transport choice, including affordable, safe and reliable alternatives to driving.”

Seeking more productive public services

Day-to-day public spending will continue to increase by 1% higher than inflation as chancellor announces Public Sector Productivity Plan

The Chancellor of the Exchequer has kept a 1% increase in day-to-day public spending above inflation, despite speculation it would be cut to just 0.75%.

Jeremy Hunt announced a Public Sector Productivity Plan which marks the first step towards returning public sector productivity back to pre-pandemic levels and will ensure taxpayers’ money is spent as efficiently as possible.

Backed by £4.2bn in funding, the plan aims to allow public services to invest in new technologies like AI, replace outdated IT systems, free up frontline workers from time-consuming admin tasks and take action to reduce costs down the line.

Hunt said:  “Although spending has continued to rise every year, public sector productivity remains below pre-pandemic levels – by nearly 6%. This demonstrates that the way to improve public services is not always more money or more people – we also need to run them more efficiently. We need a more productive state not a bigger state.”

“It’s not fair to ask taxpayers to pay for more when public service productivity has fallen.Nor would it be wise to reduce that funding given the pressures that public services face. So I am keeping the planned growth in day to day spending at 1% in real terms. But we are going to spend it better.”

The Local Government Association (LGA) analysis shows cost and demand pressures have added £15bn (28.6%) to the cost of delivering council services since 2021/22. Almost two-thirds of spending for councils with social care responsibilities was spent on services for adults and children – this is up from 56.5% in 2016/17.

An LGA survey found 85% of councils said they would still have to make cost savings to balance their 2024/25 budget, despite extra government funding. Over half (52%) of all respondent councils anticipated having to make cost savings within at least three different neighbourhood services.

The LGA responded to the Budget, saying: “It is disappointing that the government has not announced measures to adequately fund the local services people rely on every day. Councils continue to transform services but, given that core spending power in 2024/25 has been cut by 23.3% in real terms compared to 2010/11, it is unsustainable to expect them to keep doing more for less in the face of unprecedented cost and demand pressures.

“Councils of all political colours are starting this financial year in a precarious position, and having to scale back or close a wide range of local services, so the continued squeeze in public spending in the years ahead is a frightening prospect for communities.

“This year also saw the sixth one-year settlement in a row for councils. Keeping them on a financial drip feed in this way has led to the steady weakening of local services. Councils need greater funding certainty through multi-year settlements to prevent this ongoing decline but also to ensure key national government policies – such as boosting economic growth, creating jobs and building homes – can be achieved.”

On changes to improve public sector productivity, Social Market Foundation researcher Niamh O Regan said: “Today's announcements on investment in technology to help modernise public services and improve delivery are welcome and necessary. Executed well, they could reduce the administrative burden on public sector staff and help to rebalance workloads. However, it is the quality of public sector leaders and managers that will decide how much is actually delivered. There is a growing body of evidence showing the importance of good leadership and management to public sector productivity, but it remains neglected in policy circles. Technological improvements will only achieve their potential if the people using the new kit are well managed and effectively deployed.”

Paul Johnson, director of the Institute of Financial Studies (IFS), said: “The chancellor left his provisional post-election spending plans effectively unchanged, despite reports that he would cut them back to ‘fund’ tax cuts. Those plans still look devilishly difficult to deliver. Sticking to them would require cuts to unprotected services (those not lucky enough to be covered by existing commitments and promises) of around 3.3% per year, under a plausible set of assumptions. This compares with cuts of 6.1% per year to those areas between 2009–10 and 2014–15, and increases of 5.2% per year over this parliament.

“The chancellor is still on track to stabilise debt as a fraction of national income in five years’ time, just about, but only on the basis of a pie-in-the-sky promise to increase fuel duties (this time we mean it – promise!) and a set of post-election spending plans that still imply substantial cuts to funding of many public services which are clearly struggling with their current level of funding. While his ambition to improve public sector efficiency and productivity is the right one, and his injection of capital funding into the NHS is a sensible way of doing so, delivering on such plans and securing cash savings will be very tough indeed. That capital funding won’t arrive until 2025–26 in any case.

“We should at least be grateful that Mr Hunt didn’t pencil in even larger cuts to as-yet-unspecified public services. Nonetheless, actually implementing his plans would require cutting unprotected services – including councils, courts, further education colleges and prisons – at around half the pace that George Osborne did between 2010 and 2015. Within the realms of possibility, perhaps, but there will be far less in the way of low-hanging fruit this time around, and banking on big improvements in public sector productivity is a risky business. Whoever is chancellor at the time of the next Spending Review – which the chancellor confirmed will not take place until after the election – might wish they’d chosen a different line of work.”

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