PARIS — U.K. Chancellor Philip Hammond is considering an increase in duty on diesel fuel and changes to VAT rules for small businesses in his upcoming budget, according to reports.
The Telegraph reported that the Treasury is considering increasing the cost of running a diesel car to burnish Hammond’s green credentials, while also raising revenue to help shrink the U.K.’s budget deficit. It claimed that ministers are also considering cutting duty on petrol at the same time.
Separately, the Financial Times reported that the chancellor is looking at reducing the turnover threshold for VAT from £85,000 to bring it closer to the EU average of £20,000. That could raise up to £2 billion for the Treasury but risks a backlash from small businesses that would be hit with a higher tax bill.
With Theresa May’s government in a fragile state following two Cabinet resignations, Hammond is under intense pressure to deliver a steady budget performance that avoids controversy. In March, Hammond was forced into a humiliating U-turn over changes to National Insurance Contributions for self-employed people after Tory bachbenchers made clear they would not support the move.
Meanwhile, Environment Secretary Michael Gove is said to be exploring new taxes on diesel cars that would go beyond current plans to increase the vehicle excise duty on new vehicles.
That could take the form of extra charges for buyers of second-hand diesel cars living in areas with high levels of emissions, the Telegraph said.
The U.K. government’s stated intention to cut pollution from vehicles in big cities has hit opposition from the motoring lobby who argue any fuel duty rise would hit small businesses — such as lorry and van drivers — disproportionately.
Opponents have so far been successful in blocking tax and duty increases on diesel fuel or cars. Premature deaths linked to nitrogen dioxide (NO2), which is a component of diesel vehicle exhaust, increased to 75,000 across Europe in 2014 from 68,000 in 2013 according to research published in October by the European Environment Agency.