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£7.5bn fuel duty freeze boost predicted

ABANDONING fuel duty rises would boost the UK economy by as much as £7.5 billion or £300 per household in the next 20 years, according to Treasury analysis.

The number-crunching will hearten right-wing Conservatives, who believe tax cuts stimulate the economy, and could encourage the Chancellor, George Osborne, to pledge tax cuts in the run-up to the 2015 General Election.

But doubts have been raised about the Treasury methodology and Labour has pointed to the Coalition's VAT hike and cuts to tax credits, which, it insists, have hit ordinary families hard.The UK Government has stopped fuel duty increases, including one due to come in this month, which means it is around 20% lower than it would have been.

But the analysis found around half of the initial revenue lost to the Exchequer as a result of the changes would be generated through the resultant increased growth.

The research, known as dynamic modelling, plots out the expected impact of policy on the long-term growth of the British economy and shows over the next two decades it increases Gross Domestic Product by up to 0.5%; around £7.5bn in today's prices or around £300 per household.

Since 2011 the fuel duty escalator has been axed with four planned increases scrapped and one penny per litre was cut in March 2011.

"Were it not for the Government's actions," explained the Treasury, "fuel duty would be going up this month to around 72p per litre." It added: "Instead, there will be no rise this April and, thanks to the Government's actions over the parliament, fuel duty is approximately 20% lower than it otherwise would have been, at around 58p per litre."

The Treasury emphasised how the figures were calculated using a "state of the art model", which computed the wider "dynamic" impact to the whole economy of tax changes rather than just the static cost to the Exchequer.

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