Advocates of a cut in fuel duties argue that the Government is reaping substantial increase revenue from VAT and North Sea oil taxes. This overlooks the loss of revenue elsewhere as a result of the economic slowdown.
The Liberal Democrats have suggested that there will be a big fall in stamp duty revenue and the Institute of Fiscal Studies have said that their figures are plausible. The 'best case' scenario put forward by the Lib Dems suggested that prices would fall by 10 per cent and transactions by 40 per cent, resulting in a £4.5bn shortfall from the March Budget projection of £9.5 billion. It includes the impact of declining prices taking properties into lower stamp duty bands.
The party's 'worst case' estimate, bassed on a 20 per cent fall in prices and a 60 per cent drop in transactions, would cost the Treasury £6.8bn. Its central forecast, assuming a 15 per cent fall in prices and a 50 per cent decline in transactions (both on the high side, especially the latter, in my view) would lead to a £5.7bn drop in revenues compared with the Treasury's forecast. Commercial property transactions, which account for a third of stamp duty revenue, had been hit harder than those on residential property.
North Sea oil revenue could be boosted by £5.5bn in 2008-9 compared to Budget predictions. However, high oil prices reduce other revenues, including corporate tax.