MPs: Fuel duty rising with inflation is ‘fiction’

MPs have called for an end to the Whitehall ‘fiction’ that fuel duty will rise with inflation.

For the past 12 years the Office for Budget Responsibility has prepared forecasts that assume tax on fuel will rise with inflation – only for the Chancellor to freeze the duty.

A report from the Treasury committee published today calls for a change in policy to prevent the credibility of the OBR’s forecasts being undermined. Jeremy Hunt is expected to retain a 5p cut announced last year, and he may also freeze fuel duty again when he delivers his Budget in March.

He is said to want to keep fuel costs down because he believes imposing extra costs on motorists would be ‘politically toxic’. Both measures together would cost £6billion per year, putting a dent in the assumptions underlying the OBR’s forecast for the nation’s financial help.

The committee’s report will say: ‘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.’

Tory Harriett Baldwin, the committee’s chairman, said: ‘After years of fiscal forecast fiction, it’s time for the Government to accurately reflect the actual path of fuel duty. Doing so would enable the OBR to produce a more credible forecast.’