Reeves had an easier route to raise tax

Budgets are a time for “difficult decisions”, as Rachel Reeves keeps telling us. But not all of them are tricky. One was a no-brainer: a route to raising at least £3 billion next year, while enhancing her net-zero credentials. The chancellor flunked it.
She should have put up fuel duty. Since George Osborne froze the levy in 2011, it has morphed into a political no-go zone for all chancellors. It had been frozen at every budget since then — until, in the wake of 2022’s Ukraine war and soaring energy prices, Rishi Sunak cut it by 5p a litre to 53p.
Today it raises about £24.3 billion a year, on figures from the Office for Budget Responsibility. But as the watchdog noted, failing to uprate it in line with the retail price index will have cost the exchequer “around £100 billion” by 2026 after “factoring in the expected negative impact on demand for fuel from higher duty rates”. In short: a long-running tax benefit to drivers.
• Record tax burden will stall growth, warns OBR
And, of course, putting that into reverse would have produced a screeching response from motorists, road hauliers, white van man and The Sun, whose Halloween take on the budget was the front page headline: “At least she kept it down at the pumpkins!” But for a bootful of reasons, it was nuts for her to retain the 5p cut and indulge them in another freeze — at a cost of more than £3 billion next year — while saying she’d keep the 5p cut for “another year too”.
Reeves said that “while the cost of living remains high, and with a backdrop of global uncertainty, increasing fuel duty next year would be the wrong choice for working people”, given it would rise by “7p per litre”. But that didn’t stop her fleecing working people, indirectly, with a £25 billion a year payroll heist from their employers — an extra tax that will see them cut staff, junk pay rises and lift prices.
Far better to have reduced the hit there with a reversal to the 5p fuel duty cut and freeze. She won’t get a better chance than her first budget. It’s more equitable. There are environmental benefits. And prices at the pumps are nothing like they were after Putin invaded Ukraine. Today they’re about 135p a litre for unleaded petrol and 140p for diesel, on RAC figures, versus a peak 191.5p and 199.09p in the summer of 2022.
Analysis from the Resolution Foundation shows that the tax cost of driving has “declined by 38 per cent in real terms since 2010”. Indeed, the think tank says “the benefits” of Reeves’s freeze “will flow mostly to richer households, who own more cars and drive them further”: an issue it finds “particularly disappointing” when the budget raised “public transport costs”. Regulated rail fares will go up 4.6 per cent next year, while Reeves lifted the £2 bus fare cap to £3.
• Budget 2024 key points: a summary of the highlights
Besides, Reeves could have made a political virtue of a fuel duty rise, badging it a necessary hike not only for the public finances but to cut vehicle emissions on the road to net zero. It would nudge motorists into electric vehicles, while possibly cutting congestion — encouraging them to think twice about trips they could make instead by bus, train or bike. And even if the Treasury hates hypothecated taxes, Reeves could have directed money raised to fixing roads and her pothole fund. Yes, a duty rise would hurt rural dwellers more, but motorists have long enjoyed a disproportionate benefit.
It’s true that with electric cars, fuel duty’s days are numbered anyway, but it’s what we’ve got for now. And when a chancellor is raising £40 billion in fresh taxes, there’s no excuse for regressively pandering to the road lobby. It needs to share in the pain.
Spot the difference. On the face of it, Shell and BP are similar sorts of companies, operating against the same macro backdrop. But as their third-quarter results have proved this week, looks are deceiving. While BP’s figures sent the shares down 5 per cent on more strategic funk — over the sustainability of its buybacks and pledge for a 25 per cent cut to fossil fuel production by 2030 — Shell’s lifted its shares 3.5 per cent to £25.78½.
• Shell profits beat forecasts and buybacks continue
One key reason? The clarity the Shell boss, Wael Sawan, has brought to his revamp of the oil group since taking charge in January last year. Under his “performance, discipline and simplification” mantra, he set out to “build consistency” in Shell’s earnings, while getting a better grip on costs and capex: vital, he says, for a business in the thick of the energy transition. He promised investors dividends and share buybacks of “30 to 40 per cent” of cashflow from operations “through the cycle”, whatever the ups and downs of the oil price. Plus at least “$2 billion” of cost cuts by the end of 2025.
The results so far? What Barclays analysts called “impressive delivery”. Off the back of a forecast-beating $6 billion in underlying earnings, mainly due to Shell’s integrated gas, upstream and marketing wings, it has just turned up with another $3.5 billion buyback — its 12th quarter on the trot of $3 billion or more. On top, with net debt down to a 2015 low of $35.2 billion, there should be more to come. Shareholders are starting to know where they stand with Sawan.
It’s not an iceberg moment — or the cue for any other lettuce. But didn’t we see a similar mix of rising bond yields and a falling pound after Liz Truss’s mini-budget? There’s no cause for similar alarm this time but gilt yields did touch a one-year high, with the two-year in particular signalling that the budget is likely to be inflationary and reduce the pace of interest rate cuts. Its yield is up from about 4.19 per cent to 4.42 per cent since the chancellor stood up on Wednesday. Servicing her £32.3 billion-a-year splurge in extra borrowing is getting even pricier.