Fuel duty frozen for ninth year in a row

Theresa May is due to announce a freeze on fuel duty in her Tory Party conference speech.

The Budget is three weeks away but this morning the Prime Minister has announced a rather significant tax cut.

Fuel duty is being frozen, from April 2019, for the ninth year in a row.

Later this morning, Theresa May will tell conference that the measure will put “money in the pockets of hard-working people from a Conservative government that is on their side”.

This freeze is a cut because the Treasury budgets on the assumption fuel duty will rise in line with inflation each year. If it doesn’t then money - in this case, the best part of £800m - needs to be found from somewhere else to make up for lost revenue.

Prime Minister Theresa May prepares her keynote speech in her hotel room. Credit: PA

The move is interesting because, just a few weeks ago, the Chancellor, Philip Hammond, told the Commons the fuel duty freezes since 2011 had cost the Treasury £46 billion in lost revenue.

He appeared to hint they were a luxury that could no longer be afforded. Extending the freeze over the next three years, he said, would cost £38 billion "twice as much as we spend on all NHS nurses and doctors each year".

The decision to freeze fuel duty is also slightly surprising given that two days ago the Chancellor told us he needed to maintain enough "fiscal firepower" to support the economy in the event of a disorderly exit from the EU.

He’s blown a bit of his ammunition. But let’s not be churlish, the fuel duty freeze will be all the more welcome for being unexpected.

Chancellor Philip Hammond speaking at the Conservative Party annual conference in Birmingham. Credit: PA

But how will this act of generosity be funded? The public finances are improving. Tax receipts have been stronger than predicted in the Spring Statement, spending has been slightly lower. That gives Philip Hammond some room for manoeuvre.

But remember the Chancellor is already supposed to be telling us how he intends to finance the extra £20 billion a year the NHS has been promised, while also keeping his manifesto pledge to eliminate the budget deficit by the middle of the next decade.

There is some evidence that public attitudes have shifted in favour of paying more tax for more public spending.

But while public opinion may have moved, opinion within Philip Hammond’s party has not.

Large tax rises will be a hard sell.

This government relies on the support of the DUP to function, there is enormous uncertainty about what happens next in Brexit negotiations.

Now is not the time for boldness. At the Budget, expect difficult decisions to be delayed wherever possible.