The Institute for Fiscal Studies (IFS) branded UK motoring and alcohol taxes “a mess” this week, claiming that the taxes were responsible for a shrinking share of receipts.
The independent think-tank said there was “a clear case for (the) reform” of driving and alcohol duties, arguing that both were poorly targeted at congestion and problem drinking respectively.
Fuel, alcohol and tobacco duties saw a 7.2% increase in receipts in 2014-15. However, the duties have dropped from 10.3% of receipts in 1978-79, and are predicted to fall a further 6% by 2020-21.
IFS critics claim that if their share had stayed at 1978-79 levels, they would raise an extra £26 billion per year.
Furthermore, “Petrol and diesel duty increases of 41% and 31% respectively would return the average cost of driving a new vehicle to its 1997 level and raise £9bn a year,” IFS spokesperson, Kate Smith, said.
The IFS also cast doubt on the Office for Budget Responsibility’s assumptions that fuel duties would rise in line with inflation.
“Since 2011 all the increases that had been pencilled in have been cancelled,” Ms Smith said.
Ms Smith argued that fuel duty was relatively well targeted at air pollution and climate change, but poorly targeted at congestion – particularly in a world where increased fuel efficiency is reducing the cost of driving. Ms Smith suggested that a system of road pricing would incentivise motorists to drive at quieter times and on less congested routes.