The Chancellor may be faced with an £8bn blackhole in five years’ time as Brits swap their petrol and diesel cars for electric vehicles (EV).
If fuel duty remains at its current level, the Treasury would receive a third less than the £25bn it received in 2023, according to a new Climate Change Committee (CCC) report.
The fuel levy has been frozen for 15 years and Rachel Reeves decided not to increase it during her tax-hiking maiden budget last autumn.
However, with a ban on the sale of new combustion engine cars by 2030 mooted, the Chancellor faces having to scramble to plug the gap in the country’s finances.
To make up the shortfall, the Government is being encouraged to slap even higher fuel duty on petrol and diesel motorists.
The CCC report said: “If fuel duty remained at the same rate as today, falling demand for fuel for vehicles would result in revenues being about a third lower in 2030 than levels in 2023.
“Without an increase in the rate of fuel duty, we expect to see fuel duty tax receipts decline rapidly, leading to a gap in revenue for the Exchequer.”
The CCC did, however, concede that the tax revenue generated from the increase in fuel duty would not remain in the long term if the hike was to push more drivers to opt for EVs.
“Environmental taxes such as carbon taxes could be used to incentivise households and businesses to shift towards low-carbon technologies,” the report added.
“This could leverage additional revenue in the short term, although if taxes are effective in shifting behaviour, then this revenue would not last.”
