Treasury loses £2.4bn of fuel duty due to lockdown

Revenue from tax on diesel sales were worst-affected, falling 49 per cent year-on-year in April and May

The Treasury lost £2.4 billion worth of fuel duty revenue in two months as a result of the coronavirus lockdown.

Fuel duty was down from £1.5 billion in April 2019, to £815 million in April 2020, and down from £1.4 billion in May 2019, to £695 million in May 2020, as drivers stayed at home in accordance with lockdown rules.

The biggest loss in revenue was from diesel sales, which saw a 49 per cent drop from £2.9 billion in April and May 2019, to £1.5 billion in the same period this year, according to HM Revenue and Customs figures analysed by the RAC. Meanwhile, revenue from fuel duty on petrol fell from £1.6 billion, to £634 million over the same period of time.

The total of £2.1 billion fuel duty taken in April and May 2020 was so low, it was similar to the monthly figure just for May 2015, which HMRC records show was £2.4 billion.

The RAC also reports that just 50 per cent of the cars covered by its telematics insurance policies were on the road during April and May 2020, which was the height of the UK’s coronavirus lockdown.

Nicholas Lyes, head of roads policy at the RAC, said: “The financial impact of coronavirus on the Government has clearly been immense. The lost revenue on fuel duty is a further blow to the public finances and, while motor traffic volumes have recovered during the summer, they are still between 10 to 15 per cent below pre-lockdown levels.

“The temptation for the Chancellor might be to recoup some of the losses by increasing fuel duty, but with the country staring down the barrel of one of the sharpest recessions on record, such a move would risk choking any economic recovery at a time when drivers and businesses are most struggling.

“This perhaps gives the Government a glimpse into the future of when fuel duty revenues start to decline more sharply with the rise of electric and other alternatively fuelled vehicles. Treasury officials might want to start thinking about how the Government approaches such a scenario considering fuel duty normally generates around £27bn a year.”

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