Expert Blog

Autumn Budget 2017: All eyes on diesel taxes

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When Ken Clarke became Chancellor of the Exchequer back in 1993, he decided to move the annual Budget from its traditional March or April slot to November. The change didn’t last long, however, as Gordon Brown returned the Budget to the spring when Labour came to power in 1997. 

But now Autumn Budgets are back. Philip Hammond has decided to copy Ken Clarke and rearrange the fiscal calendar. In his Autumn Statement last year, the Chancellor announced that Budgets would move to the autumn, with a smaller statement taking its slot in the spring. And so, Hammond will deliver the first of his new Autumn Budgets next Wednesday.

With this being the second Budget of 2017, we might have expected it to be a relatively low-key affair. Instead, Conservative MPs are publicly and privately urging Hammond to include bold measures in an attempt to rejuvenate the Government’s image after a difficult six months. Some have even suggested that he should be replaced as Chancellor if he fails to do so. 

Tax rises for diesel?

A big announcement that is expected will be of particular concern to many fleets and motorists. As we reported at the time, the Spring Budget stated that ‘the government will continue to explore the appropriate tax treatment for diesel vehicles, and will engage with stakeholders ahead of making any tax changes at Autumn Budget 2017.’ That policy was reiterated – word for word – in the Air Quality Plan that was published in July.

So, a decision on diesel taxes is due from the Chancellor on Wednesday. But what form will it take? We’ll have to wait for Hammond to reveal the details in his speech, but reports suggest that sales of diesel vehicles will be subjected to higher VAT or VED rates, or a brand-new levy.

And will Hammond offset any tax rises with some good news for motorists? The Air Quality Plan also promised a consultation on measures to support motorists facing additional costs as a result of policies to tackle pollution. In particular, it said the Government would focus on ways to help low-income motorists and those forced to buy greener vehicles. That consultation has not been published yet. Might Hammond take the opportunity to reveal some of these proposals in his speech?

Will the Fuel Duty freeze continue?

Another way the Chancellor could extend a hand to motorists is by extending the freeze on Fuel Duty – or even cutting it. George Osborne kept the rate at 57.95 pence per litre from 2011 onwards, and Hammond announced in his Autumn Statement last year that it would stay frozen at that level until April 2018. It is then due to rise in line with inflation, but – with prices increasing at the pump in recent months – Hammond is again under pressure to cancel that rise and maintain the freeze.

One option that the Chancellor is reportedly considering is to cut Fuel Duty for petrol while raising it for diesel. (Currently, both fuels face the same 57.95p per litre rate.) While a cut would be welcome news for the nation’s 18.5 million petrol motorists, such a move would place a heavy extra burden on the 15.7 million who rely on diesel – including 96% of all van drivers.

The Chancellor faces tight constraints

A Fuel Duty hike would also be likely to provoke a lot of controversy, and that is something Hammond can ill afford. He was forced into an embarrassing U-turn on National Insurance Contributions within days of his last Budget in March, and that was at a time when the Conservatives still had a majority in the House of Commons. They have since lost that majority, and it could take a rebellion of just a handful of Conservative or Democratic Unionist MPs to stop Hammond in his tracks this time.

That demonstrates the broader challenge facing Hammond when he rises to the despatch box next Wednesday. On the one hand, he has his Conservative colleagues – both in the Cabinet and on the backbenches – pressing him to be ambitious. On the other, he has a narrow margin to pass any measures through Parliament, as well as a darkening economic outlook to contend with. Even if Hammond wants to be bold, the arithmetic might get in his way.

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