Increasing fuel duty could drive inflation, Logistics UK warns Chancellor ahead of Budget

The submission argues that increasing costs for the transport and logistics industry would apply the handbrake to economic growth while driving up the price of everyday goods.

It also warns that higher costs for the sector could inhibit its ability to continue investing in decarbonising the industry.

The extension to the five pence per litre cut in fuel duty is set to end in March 2025 and Logistics UK’s submission calls for the cut to be maintained for a further year.

According to Logistics UK analysis, a 1p increase in fuel duty would cost haulage businesses across the UK over £185m per year. 

David Wells, Logistics UK chief executive, said: “The logistics sector underpins all other sectors and has a critical role to play in driving growth and the new government’s industrial strategy, so now is not the time to increase costs for logistics businesses.

“With hauliers operating on low margins, typically around 2.5%, often the only sustainable way to manage cost increases is to pass them on through the supply chain with consumers, ultimately, picking up the tab in higher prices.

“This is something our members are loath to do but will have no choice when they are also managing rising wage costs and new vehicle prices, while investing in new equipment to take us into a net zero future. 

“We recognise the constrained fiscal situation facing the Chancellor and are confident that the best way that our sector can help the government manage it is by driving growth that would be stifled by tax increases.” 

According to Logistics UK, fuel represents a third of the costs for logistics businesses and the weekly fuel bill for a 44-tonne diesel HGV is estimated to be approximately £888 with £436 taken in fuel duty by HMRC.

The trade body’s submission highlights that logistics businesses paid £5.84bn in fuel duty in 2021, contributing more than 20% of all fuel duty paid to HMRC.

 Wells added, “In the medium term, we are calling for a move to a dynamic mechanism for fuel duty that, in periods of inflation, enables the Treasury to keep fuel duty down by taking into account its tax receipts from VAT on fuel. We also want the government to better align road and rail charges, to enable rail freight to be cost competitive.

”For the long-term, we are keen to work with the government to help develop plans for the future of transport pricing that ensure it works for the logistics sector and wider economy. Any new pricing system must recognise that logistics works as an integrated system across transport modes and operators must be able to make rational decisions to move goods in the most productive, strategic and green way.” 

The call to maintain the current fuel duty cut is one of several measures outlined by Logistics UK in its submission to the Treasury.

Logistics UK has set out five priority areas for unlocking economic growth, which include creating a closer partnership between the government and logistics sector; developing innovative and integrated infrastructure; ensuring a fair transition to becoming a clean energy superpower that rebuilds the UK’s industrial strength; creating a skills partnership to support a thriving sector; and backing trade as a driver of innovation and productivity.