The Centre for Economics and Business Research, Cebr was requested by the FairFuelUK campaign to investigate whether an economic case could be made to support its view that a cut in fuel duty could generate more tax revenues from across the wider economy as a result of increased economic growth and business and consumer confidence.
To do so, Cebr undertook an independent assessment of the wider economic impact of a reduction in fuel duty and, then, whether the loss of tax revenues from such a reduction could expect to be compensated through the greater taxation from other sources and the reduced social welfare commitments that would result from the fiscal stimulus that such fuel duty reductions would provide to the UK economy.
Our findings suggest that a 2.5 pence reduction in fuel duty would result in the creation of 175 thousand jobs within a year and 180 thousand jobs within five years of such a reduction. Such a reduction, we estimate, would not result in any fiscal loss to the Government, while GDP would receive a boost of 0.32 per cent within a year and 0.34 per cent within five years.
We find that a more significant 5 pence reduction could generate an additional 200 thousand at a net annual cost to the Exchequer of around £1.2 billion within a year, which would fall to £1.0 billion per annum within 5 years. The boost to GDP would be smaller in this scenario; 0.28 per cent after a year and 0.30 per cent after 5 years.
These are not insignificant impacts in the current climate of less than 1 per cent annual growth. But this is not to mention the intangible benefits that could flow from the morale boost provided to consumers by helping to alleviate the current squeeze on their disposable incomes.
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