Budgets typically involve a range of challenging choices, as Rachel Reeves frequently asserts. However, some decisions can be straightforward. A clear opportunity was available to raise at least £3 billion next year while also bolstering her commitments to net-zero emissions. Unfortunately, the chancellor missed this chance.
Raising fuel duty would have been a logical step. Since George Osborne’s freeze on the levy in 2011, it has become a politically sensitive issue for successive chancellors. The freeze continued in every budget until Rishi Sunak, in response to the ongoing Ukraine conflict and rising energy prices, reduced the duty by 5p per litre, leaving it at 53p.
According to figures from the Office for Budget Responsibility, fuel duty currently generates approximately £24.3 billion annually. However, the watchdog has indicated that not adjusting the duty in line with the retail price index may cost the treasury around £100 billion by 2026, taking into account the anticipated decrease in fuel demand due to rising duty rates. This situation has resulted in a long-term tax advantage for drivers.
Of course, reversing this freeze would likely provoke strong reactions from motorists, transport companies, and media outlets, as evidenced by The Sun’s tongue-in-cheek Halloween headline, “At least she kept it down at the pumpkins!” Yet, given the circumstances, Reeves’s decision to maintain the 5p cut and implement another freeze—and thereby incur a cost exceeding £3 billion next year—appears ill-advised.
Reeves argued that with high living costs and global economic uncertainty, increasing fuel duty next year would be detrimental for working individuals, as it would lead to a 7p per litre hike. However, this stance does not prevent her from indirectly taxing working individuals through a £25 billion annual payroll levy imposed on their employers. This additional tax is likely to result in job cuts, halted pay increases, and heightened prices for consumers.
It would have been far more beneficial to ease this burden by reversing the 5p cut in fuel duty and introducing a freeze instead. This first budget would have provided her with an excellent opportunity to implement such a fairer measure. The approach would have been more equitable, offered environmental advantages, and current fuel prices are significantly lower than they were following the onset of the Ukraine invasion. Presently, prices stand at approximately 135p per litre for unleaded and 140p for diesel, compared to peaks of 191.5p and 199.09p in the summer of 2022.
Analysis from the Resolution Foundation indicates that the tax on driving has “declined by 38 percent in real terms since 2010.” Moreover, the think tank highlights that the advantages of Reeves’s freeze are predominantly benefiting wealthier households, who tend to own more vehicles and drive longer distances. This disparity is particularly disappointing, particularly as public transport costs are on the rise—regulated rail fares will increase by 4.6 percent next year, and Reeves has raised the £2 bus fare cap to £3.
Additionally, Reeves could have framed a fuel duty increase as a necessary move not only for public finances but also in efforts to reduce vehicle emissions on the path to net-zero. Such an increase could encourage a shift towards electric vehicles and potentially alleviate traffic congestion by prompting drivers to consider alternative transport methods such as buses, trains, or cycling. Although hypothecated taxes may not be favored by the Treasury, Reeves could have allocated the additional revenue to road maintenance and her pothole initiative. While a tax hike could impact rural residents more acutely, it is worth noting that motorists have historically benefited disproportionately.
It is evident that with the rise of electric vehicles, the days of fuel duty are numbered. However, given the current fiscal landscape, there is no justification for a chancellor raising £40 billion in new taxes while catering to the interests of the road lobby. A fairer distribution of the financial burden is warranted.
Comparing Shell and BP
At a glance, Shell and BP may appear to be quite similar in their operations and business environments. However, their third-quarter financial results have revealed a different narrative. While BP’s report resulted in a 5 percent drop in shares due to concerns regarding its sustainability commitments and a pledge for a 25 percent reduction in fossil fuel production by 2030, Shell enjoyed a 3.5 percent increase in shares, climbing to £25.78½.
A key factor in this variation is the clear direction provided by Shell’s CEO, Wael Sawan, who has been at the helm since January last year. Under his leadership mantra of “performance, discipline, and simplification,” he has prioritized consistency in Shell’s earnings while maintaining tighter control over costs and capital expenditures—an essential strategy amid the energy transition. Sawan has assured investors of dividend payouts and share repurchases comprising “30 to 40 percent” of operational cash flow “through the cycle,” regardless of fluctuations in oil prices, alongside at least “$2 billion” in cost reductions by the end of 2025.
The results to date have impressed analysts at Barclays, who have noted “impressive delivery.” Following a robust $6 billion in underlying earnings—primarily from Shell’s integrated gas, upstream, and marketing sectors—the company announced an additional $3.5 billion share buyback, marking its twelfth consecutive quarter of buybacks exceeding $3 billion. Moreover, with net debt reduced to its lowest level since 2015 at $35.2 billion, further positive developments are anticipated. Shareholders are beginning to gain clarity regarding Sawan’s leadership.
Market Reactions
While not a dramatic moment, the current environment does bear resemblance to the outcomes following Liz Truss’s mini-budget, with rising bond yields and a declining pound. Although the situation does not warrant alarm, gilt yields did reach a one-year high, particularly the two-year yield, which suggests that the latest budget may spur inflation and slow interest rate reductions. Since the chancellor’s address on Wednesday, the yield has increased from about 4.19 percent to 4.42 percent. This uptick makes servicing her £32.3 billion-per-year borrowing even more expensive.