The UK Government could lose £15billion in tax revenue from motoring taxes before the end of the decade as drivers transition to electric vehicles.
Forecasts from the Office for Budget Responsibility suggests that if fuel duty remains frozen next year, it could lead to massive issues for the Treasury.
The current rate of fuel duty is 52.95p, having been frozen by the Government in 2011, in a bid to help petrol and diesel drivers with their finances.
Chancellor Jeremy Hunt extended the five pence per litre cut earlier this month after it was first introduced in 2022 in response to the Russian invasion of Ukraine.
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The fuel duty loss by 2029 could cost £15billion
GETTYAccording to the Financial Times, gross fuel duties were 2.4 per cent of gross receipts, down from 45 per cent in 2011.
This trend is assumed to continue in the coming years as drivers look to ditch their internal combustion engine vehicles and buy electric cars.
There are already more than one million EVs on UK roads, with various predictions suggesting that millions more will be on the road by the end of the decade.
Although Prime Minister Rishi Sunak delayed the ban on petrol and diesel cars from 2030 to 2035, there is still optimism from the automotive industry that appetite for EVs will remain in the future.
Carl Emmerson, deputy director at the Institute for Fiscal Studies, said: “Roll forward a few more years, and most motorists will be driving electric cars, and the fuel duty tax base will collapse completely.”
Data from the OBR found that the fuel duty freeze from 2011 and the 5p per litre cut from 2022 has cost the Treasury £90billion in lost revenues.
Gideon Salutin, senior transport researcher at the Social Market Foundation think-tank, said: “We might as well be burning our money.
“After all the money we spend on it, it only saves the median driver £13 a month.”
Research shows that fuel duty is declining permanently after a peak of £24.7billion in the year ending in 2025 if it remains unchanged for the next five years – equal to a loss of £15billion in revenue from 2024 to 2029.
If the Government were to allow the fuel duty freeze to expire, not only would it be a huge political headache, but it would also force prices up for drivers at the pump.
Despite the fuel duty cut in 2022, filling station prices reached their highest ever level with drivers seeing prices of £1.90 per litre for petrol and almost £2 for diesel.
It is believed the fuel duty cut has cost the Government £13billion to maintain over the last two years, saving the average driver £250 in the meantime.
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James Browne, senior policy advisor at the Tony Blair Institute, urged the Government to do something to address the massive loss in revenue.
He said: “I think the big picture is that fuel duty revenues will disappear anyway as we move to an electric fleet.”