Recommendation 2

HM Treasury cannot explain how it will manage declining revenues from consumption of fossil fuels, worth £37 billion in 2019–20. HM Treasury has identified risks to £37 billion of revenue from taxes that are wholly dependent on the consumption of fossil fuels or the emission of greenhouse gases. In particular, the government’s decision to end the sale of new petrol and diesel vehicles by 2030 will accelerate the transition to electric vehicles and reduce revenue from fuel duty. Fuel duty raised around £28 billion in 2019–20, equal to an increase of around 6p on the basic rate of Income Tax. The government said in November 2020 that revenue from motoring taxes would need to keep pace with the move to electric vehicles so that it can continue to fund public services and infrastructure. In its evidence to us, HM Treasury suggested that it had nine years to prepare for declining levels of fuel duty. But we disagree. The government, with the Department for Transport in the lead, is seeking to encourage people and businesses to move to cleaner vehicles now. Government typically needs several years to consult on major tax changes and HM Treasury will need to act soon to identify and consult on options for motoring taxes, and the impact on different parts of society and the levelling-up agenda. Recommendation: By the next budget, HM Treasury should set out a timetable for how it will consult on options for replacing declining revenues from fossil fuels including fuel duty; and ensure it plans for sufficiently early and broad consultation with different parts of society, particularly with the government’s levelling-up agenda in mind.