Fuel Duty Freezes and Hard Working Families

DecarboN8 Director, Professor Greg Marsden, explains why the fuel duty freeze is counterproductive for both people and planet

Last week’s budget heralded a “record tenth year in a row” of a fuel duty freeze, which the Budget document suggests is part of “cutting the cost of living” and “helping hard-working people keep more of what they earn”. Tax doesn’t go up, people are better off, what’s your problem with that? Move on right?

As with any announcement, you need to peel back the spin to really think about who this is a benefit for and under what terms it might be heralded a benefit. There are five issues which sit underneath this which need unpicking if the debate on how we pay for travel is ever going to be socially progressive and contribute positively to climate change. These are:

  • It is a tax break which benefits those who drive the most and, therefore, the wealthiest in our society (who also pollute the most)
  • It widens the affordability gap between public transport and private car use at a time where we need more people to switch away from the car
  • It pushes more people into car ownership who, despite the fuel subsidy, cannot really afford to own a car (bear with me on this!)
  • It generates extra car traffic – taking us away from a discussion we absolutely have to have about how we pay for transport use in the future
  • It has absolutely nothing to do with whether or not you work hard

I take each of these in turn.

It benefits the well off the most

The chart below shows the average number of miles driven by car by each of the five income quintile groups in the UK (data from the 2018 National Travel Survey). It doesn’t require a degree in maths to spot the inequality here. The wealthiest income group drives just over three times as far as the least well-off group, meaning this tax break will benefit the wealthiest the most. The Treasury estimates the “average motorist” has saved £1200 cumulatively as a result of the ten years of fuel duty freeze – but this framing hides the fact that when you factor in how many miles are driven, then the highest income group has benefited around £1760 and the lowest £570.

chart showing miles driven by each income group

Just to put the figures in context, the cumulative £1200 benefit would fund three and half years of access to all public transport for the city of Vienna. It is a choice where we put our tax breaks and subsidy.

It widens the affordability gap to public transport

Household expenditure on fuel is around one-third of all motoring costs, the remainder being purchase, insurance, parking, servicing and repairs. In the decade 2008 to 2018, the Retail Price Index (a measure of how much things cost) has increased 31% in real terms. Overall motoring costs have increased by the same amount with fuel costs increasing by less (15%) but costs like insurance rising more quickly.

It is when you compare the price increases with public transport that the arguments for holding back fuel duty rises seem bizarre. Rail costs have increased by 49% and bus, coach and taxi by 66% over the decade to 2018, more than twice the rise in motoring costs. This is a result, in part, of deliberate government decisions to recover a greater percentage of the costs of running the railway from passengers by allowing large annual fare increases. The bottom line is that public transport is being made less affordable than driving.

It pushes more people into car ownership who cannot afford it

How can a policy which is holding down prices on fuel be bad for those who are hard up? The reason for this is that around five per cent of all households own a car despite not having enough money for items such as a washing machine, adequate heating or one week’s holiday away from home. This figure is 11% for households with four or more people (hard-working families perhaps?). This is referred to as forced car-ownership. More in-depth analysis of the reasons for this shows that people get access to a car to overcome the expense, limited service patterns and lack of early morning and evening provision of public transport. This is coupled with less secure employment and housing insecurity in the private rented sector to create conditions where a significant proportion of the population are forced to own a car to work around these wider failings in public service provision. It is certainly not a desirable choice to own a car at the expense of basics such as heating or phone access – such decisions are driven by necessity not luxury. This can be contrasted with Germany where only 5% of households with four or more people fall into the forced car ownership category. Again, the decision to provide tax breaks for fossil fuels rather than to fund public transport is a policy choice, and one which draws people into needing a car when they cannot afford one even with a fuel duty subsidy.

Forced car ownership – if you own a car and cannot afford three of these
1. to face unexpected expenses (of an amount equivalent to the monthly poverty line in the respondent’s country);
2. one week annual holiday away from home;
3. to pay for arrears (for mortgage or rent, utility bills or hire purchase installments);
4. a meal with meat, chicken or fish (or vegetarian equivalent) every second day;
5. to keep home adequately warm;
6. to have a washing machine;
7. to have a colour TV;
8. to have a telephone (fixed landline or mobile);

It generates extra traffic

There has never been a clear narrative about what fuel duty is for, even during the time of the fuel duty escalator in the 1990s. What policy arguments might have existed for using it as a tool to manage travel demand seemed to evaporate at the time of the Fuel Duty Protests and have yet to re-appear. What is irrefutable is that when prices rise, demand drops, and when prices fall, demand rises. Estimates vary but in the short run, for every 10% increase in fuel price distance travelled falls between 1% and 5% and vice versa. So, the policy of the past decade has been to stimulate a growth in road traffic which, in turn, fuels demand for more road infrastructure to tackle the even busier pinch points which result. All of this is contributing to the climate change problem and is one of the reasons why emissions from transport have flat-lined and are now the largest sector of the economy.

We have known since the oil price spikes of the 1970s that one way in which people respond to fuel price increases has been to buy more fuel-efficient cars. What has become clear over the past decade is that cheaper motoring costs, coupled with cheaper financing deals for new cars has flipped this on its head. Research has recently shown that sales of Sports Utility Vehicles have outstripped sales of Battery Electric Vehicles by 37 to 1 in 2018, almost quadrupling to 21% of all new car sales over the past decade.

Of course, fuel duty is a fairly limited policy tool. It is a one-size fits all tool which has to work in rural and urban areas. It is also increasingly subject to challenge given the ambition for all new cars to be electric by 2035. There will not be any fuel duty by 2035 and we currently just pay 20% VAT on domestic electricity. If no changes are made to how we pay for travel, the Department for Transport suggests that by 2050 traffic levels will have risen by 42% more than if we did not make switch to electric. Think of the additional demands for road construction and the pressure on our urban areas where expansion is not possible that this would bring! Is that a future we want? Given that we cannot muster the political will to deliver even a marginal increase in fuel duty, I am sceptical that we can find the will to address this urgently needed system wide transition.

Do hard-working families benefit from the fuel duty freeze?

Where to start on this one? Well, of course some do. But what about the households that don’t own a car? The ones facing annual price hikes for public transport? Around one in four UK households do not own a car. This is as high as 45% in London and as low as 15% in the South West. Perhaps the people in the South West all work harder than those in London? As I showed earlier, the highest income families will get three times as much benefit from the fuel duty freeze compared to the lowest earning families. Perhaps the rich work harder than the poor then? These comparisons are as ridiculous as the ‘hard-working families’ trope itself. If this is about lowering the cost of living for families who are struggling, then it is extremely poorly targeted.

In conclusion

As the terrible events surrounding the outbreak of the Coronavirus continue to unfold, it could seem trivial to debate one or two pence on the cost of a litre of fuel. However, when life begins to return to ‘normal’ the points raised above will not have gone away, and the climate emergency will still be here. It seems likely that oil prices will be depressed as the global economy faces a long recovery period so, what funds are available will best be targeted towards helping the public transport system recover and supporting the most vulnerable and hard-up to use it. Hopefully, this is the end of the road for fuel duty freezes.

Budget 2020 – Transport: We can’t build our way out of the climate challenge

DecarboN8 Director, Professor Greg Marsden, analyses the implications of Budget 2020 for decarbonising transport

The budget is a missed opportunity to rebalance what we spend our transport funding on. Too much capital spending on road schemes will undermine the increases in spending on public transport, as will the 10th consecutive year of frozen fuel duty. Experience shows roadbuilding just generates more traffic and we can no longer afford to add to the size of the carbon challenge.  When the climate emergency demands a new approach that commits governments to create the conditions where we can travel less by car, we are spending more on roads.

The Budget proposes a £5.2bn budget for spending on major infrastructure investment in our major cities, all to be spoken for by 2025. This is on top of £5bn announced for investment in walking, cycling and bus improvements. This is all welcome and necessary but insufficient. Even with the most optimistic EV adoption pathways we will need to reduce the amount we travel by car by at least 10% and more than double bus, rail and cycling by 2030 and then do even more out to 2050. This funding will help deliver major public transport capacity improvements. However, we also require subsidy for service frequencies and fares to enable more routes to be available at more times of the day and night so people can use public transport for their everyday needs. We see no sign of this switch to revenue support in the budget, where capital spending remains king.

Contrast the £5.2bn for public transport to “the largest ever investment in English strategic roads, with over £27 billion between 2020 and 2025”. When we build more roads or add capacity we encourage more driving. Add to this the freeze in fuel duty for a “record tenth year in a row”. The OBR estimates that fuel duty freezes mean there has been a 40% real-terms fall in the tax share of GDP which fuel duty provides since 1990 as motoring gets cheaper. The result? New car sales of SUVs have sky rocketed as consumers have traded up the lower costs of motoring and better engine technology to bigger cars. 37 SUVs were sold for every Battery Electric Car in 2018. Whilst there is a welcome continuation of incentives for the Plug-in-Car Grant those are still well below those in countries such as Norway who lead the way.

If we cannot be compliant with our carbon pathway without reducing how much we drive then why on earth are we building more roads? They won’t be needed if the other things we have to do take priority. At the very least there should be a moratorium on new road construction until the penetration of EVs in the fleet is close to 100% – so not any time in the period of this budget. One of the key problems is that the Treasury appears to be writing the cheques on what the balance of spending will be before the Department for Transport publishes its long awaited Decarbonisation Strategy. Given the recent experience with the legal challenge to the third runway at Heathrow, it would not be surprising to see further court challenge to this “infrastructure first” approach in the coming months.

The focus on shovel-ready infrastructure expansion on the roads will, regrettably simply dig us a bigger climate hole to get out of.

induced demand

DecarboN8 at Leeds State of the City

The Climate Emergency was the theme of Leeds City Council’s State of the City event this year. Several members of the DecarboN8 team attended to talk with participants about what they felt needed to change in order for Leeds to become a city where you do not need to own a car.

Councillor Judith Blake opened the event by sharing a vision of Leeds as a place where it doesn’t matter where you were born, you should have equal access to opportunities, clean air, transport, and quality of life. The people we spoke to found it easy to imagine how reducing our dependence on cars could help achieve this goal. There was an overwhelming sentiment that a city the size of Leeds should have great public transport. People are ready to ditch their cars in favour of more sustainable options, but they are finding it difficult to shift away from car-use due to the high cost, poor coverage, and lack of capacity on trains and buses serving the Leeds area at the moment. They also feel unsafe cycling and walking in our car-packed city.

DecarboN8 Director, Professor Greg Marsden, shared this presentation with a workshop which looked at transport, challenging participants to think about what changes would be required to make Leeds a less car-dependant city:

Later in the workshop we were asked to map our journeys around Leeds, consider where we could shift those journeys to more sustainable travel options, and discuss what barriers prevent us from choosing those options. Participants spoke of having to travel by car for most journeys because public transport options were unavailable, unreliable, too costly, or felt unsafe. Others mentioned peripheral factors such as their children’s school not providing anywhere for the children to store their coats, making walking difficult, especially in winter.

DecarboN8 also had a stall in the exhibition area, where we provided maps of the Leeds area to participants and invited them to draw their ideal transport future for Leeds. You can see their responses in the slide deck below. Common themes include: the need for circular public transport routes connecting suburbs, congestion charging, a pedestrianised city centre and safe walking and cycle paths.

Keynote speaker, Natalie Fee, from City to Sea shared this quote:

“We change our behaviour when the pain of staying the same becomes greater than the pain of changing”. ~ Tony Robbins

The conversations we had at the State of the City event suggest that people in Leeds care about the climate crisis and are keen to change their behaviour, but at the moment the pain of changing still feels too great. Those we spoke to concurred that to shift this, balance better public transport and active travel options must be extended across the city to provide safe and reliable alternatives to the car, fit for the complex realities of people’s day to day lives.

DecarboN8 is offering seedcorn funding to develop research projects to tackle these kinds of issues. The deadline for applications is 5pm on 27th February 2020.