Unannounced Environmental Tax Reform in the UK: The Fuel Duty Escalator and Income Tax in the 1990s

Environmental tax reform (ETR) is a process of shifting the weight of taxation from socially desirable activities, such as labour and profit-generation, to the use of natural resources and the generation of pollution. The paper calculates the revenues from the UK fuel duty escalator (FDE) (an above-inflation increase in fuel duty implemented from 1993 to 1999), and compares these with the revenues lost from the cuts in income tax in 1995 and 1996, and again in 2001. The paper finds that the lost revenue was roughly the same as the revenue from the FDE. In effect the governments concerned had implemented an ETR without in any way drawing attention to the fact. The FDE was discontinued in 1999 when the oil price rose and, in the face of protests at the level of fuel duty the following year, real revenues from fuel duty subsequently declined. It is at least arguable that, had the fact that FDE had facilitated income tax cuts been established by the government at the time, the FDE and fuel duty generally would have been less unpopular.