Impact of Increase in Duty on Petrol and Diesel Cars in the UK Car Market from 2019

This essay discusses the impact of the increase in duty on petrol and diesel cars in the UK car market from 2019, including its effects on consumers, businesses, and the overall economy.

Economics, AAF010-1

TABLE OF CONTENTS
Impact of increase in duty on petrol and diesel cars in the UK car market from 2019..........3
Impact of UK government to ban the sale of all petrol and diesel running car by 2032.......6
REFERENCES...........................................................................................................................9

Every governmental decision has some impact over the economy which has be
positive or negative. There are times when the actions taken by the government are seem to
be very harsh but will be having a long run benefits for the economy as a whole. UK is
currently facing the serious challenge of poor air quality and in order to reduce the
environmental risk it has decided to take some crucial initiatives. This essay presents about
the impact of rise in the duty on the petrol and diesel cars in UK and also banning the sale of
such cars by 2032 would have an impact on the car market and the economy. This will
provide a sound insight about the impact it have over the consumers and the businesses and
how things will change.
Impact of increase in duty on petrol and diesel cars in the UK car market from 2019
The cost of fuel has an influence over everyone. For everyone who choose to drive
faces the problem in regard to cost of fuel. Recently, the UK government has implemented
plan to increase the fuel duty on the petrol and diesel cars with the aim of reducing the
environmental risk because of poor air quality in the country which is very harmful for the
public health which costed up to £2.7 billion (approximately) in lost productivity in a year
(Namdeo and et.al, 2019). Government has also taken certain actions previously as well by
imposing punitive taxes on all the vehicles which are having major emission such as diesel
vans and other petrol and diesel vehicles. By imposing higher tax on the such vehicles
government aims at reducing the purchase of such vehicle and making a move towards
electric vehicles for everyone’s well being. The govt. is of the thinking that it will hold the
polluting cars for the longer. If such thing happens, it will have a huge impact over the
demand and supply of the cars (Mattioli, Wadud and Lucas, 2018). The increase in duty will
affect the purchasing power of the consumers with no assurance about the future plans that
the government might impose over it. This has led to decrease in the demand of petrol and
diesel cars in the country and also the increase in the fuel cost has also added to it.

(Source: https://friedmanseconomy.wordpress.com/2013/04/04/south-africa-sink-or-swim/)
From the above graph, it can be interpreted that the aggregate demand of the petrol
and diesel cars will reduce may be at slow pace but in future there will be a huge fall in
number and along with that the supply will also be reduced. This will also have an impact
over the GDP of the country. The GDP of the country will see a fall as the production of such
vehicles will start decline and also the purchase of it will also reduce because of the
continuous increase in the fuel price and the rise on the duty of such vehicles. The demand
and supply both will shift together. As stated in the graph, shift in the aggregate demand for
the cars to AD1 from AD is a result of the fall in the desire of having that good, lower
purchasing power of the consumers and all this has resulted into the decrease in the consumer
demand (Alberini and Bareit, 2019). The supply has also shifted towards left as the outcome
of the firms struggle in meeting with their costs. As the consumers will start avoid such
vehicles which results into pollutions and also taking into consideration the government plans
and actions in respect to the same. Slowly and slowly this initiative will force the consumers
and the businesses to shift towards the electric or the hydro powered vehicles or cars. But
there are certain concerns of the consumers in respect to the charging point, functioning of
its, cost associated with the charging of it and how long it will take to be fully charged and
can they put full faith in it or not.

(Source: https://www.tutor2u.net/economics/reference/circular-flow-of-income-and-
spending)
The above graph represents the circular flow of income and in context to this, the
government would be receiving higher duty that is being imposed upon the petrol and diesel
cars which will result into more revenue from household to government in the form of tax
which can be utilized by the government in its purchases for public welfare. It can be mainly
used in promoting the use of electric vehicles among the vehicle and also in providing
support to the companies in making a shift from fuel-based vehicles to the electric vehicles
(Hill and et.al, 2019). But on the other side, the reduction in demand will also affect the
actual revenue that the revenue company and the government would have otherwise received
resulting into decline in revenue causing fall in the GDP of the economy.
Other than the demand and supply, there is also an increase in chances of rise in
unemployment in the economy. This is because of the reason that with the reduction in the
supply the production of the cars will also be decreased causing reducing in the labours
required and this will consequently lead to removing the staff, creating the situation of
unemployment in the nation. This situation might be sometime but yes it will be there. The
spending of the consumers will also be reduced as people will think twice before making a
purchase which will make it difficult for the economy to grow further and along with that
combating the situation of unemployment. In short run, it is less likely for the economy to
grow but in long term it will achieve its growth.

Impact of UK government to ban the sale of all petrol and diesel running car by 2032
The UK government has made arrangements to ban the sale of new cars running on
petrol and diesel by 2032 – something already resulted into a steep decrease in the demand of
diesel vehicles as of now. This will likewise have significant effect on the refining part and
the oil markets. The UK administration declared plans to boycott all new petrol and diesel
running cars and vans from 2032, in the midst of fears that rising degrees of nitrogen oxide
represent a significant hazard to general wellbeing (Bennett and Vijaygopal, 2018). The
plans, which followed a comparable responsibility from the new French government, came as
a feature of the administration's eagerly awaited clean air plan, which has as of late been at
the core of an extended high court fight in court. With this initiative and the renewed interest
in the technology, the well known automotive company Tesla has been rolling its cheapest
car models in UK. This initiative has been taken by the government in order to fight with the
climate crisis and achieve its objective of reducing the carbon emission to net 0 by the end of
2050.
The government has already given time of automobile companies till 2032 to come up
with the ways to order to deal with the situation after that time frame. The company’s have
been started towards making electric vehicles and has reduced the production of petrol and
diesel cars. If the government actually bans the such vehicles from the market then it will
give a rise to the electric cars and the companies who are working effectively on
implementing the electric car production system will be mostly benefited. This will actually
result into accomplishing the desired objective of the government in reducing the
environmental risk in association with the emission of the harmful gases in the environment.
For doing this require a complete transformation in the car market of the country (Yan,
2018). For meeting the 2032 goals, will require a lot of things. In the last year, the country
saw an increase of sales of the battery powered electric vehicles has grew by 144% but on the
other side the sales have grew less than 2%. The UK govt. has already collaborated with the
industry in order to ensure that the right practices and plans have been implemented for
making it a big success like consumer incentives, policies and the infrastructures and so forth
in order to drive growth.
This will also have an impact over the demand and supply of the cars. If the all the
petrol and diesel running cars are banned by 2032, then it will lead to increase in the demand
and supply of the electric cars which may at the initial phase slow but will eventually grow at
the fast pace (Alam and et.al, 2018). Since, the government has already made the people and

the automotive industries aware of its action which makes them prepared for accepting the
changes. It will not have much impact over the demand and supply of the cars as the people
who are looking to buy a new car will directly purchase the electric car and those people who
are waiting for that time frame to over and then purchase a new car waiting for any change in
the government policies. But on an overall basis, the aggregate demand and aggregate supply
both will increase with respect to the electric cars as other cars will exit the market.
(Source: https://www.economicshelp.org/macroeconomics/economic-growth/)
The above graph highlights about the shift of demand curve from AD1 to AD2 and an
increase in the long run supply curve from point LRAS1 to LRAS2. This will result into
growth in the GDP of the nation without having any impact over the inflation.
In the short run the economy isn't probably going to recover, growth and development
is very important if the administration expects to battle the high pace climatic changes which
is hazardous to life. It is basic to re-establish purchaser trust in the economy, and furthermore
empower individuals to get credit all the more effectively as to re-establish the total aggregate
demand of the economy. Over the long term for the economy to endeavour to look after and
maintaining growth, disposing of joblessness is basic to endeavour to get the economy
working back at a state of the PPF. However, this could prompt an inflationary reaction as the
demand pull, and the government would be required to start thinking about how to diminish
previously expanding inflation because of rising production costs.

The banning of the cars will indirectly bring opportunities in dealing up with the
increase in the unemployment which has been caused because of reduction in the sales of
petrol and diesel cars. This will again create job options as the companies would require more
labour for manufacturing the electric but there might be requirement of the semi-skilled
labours who can work on electric vehicles (Turner and et.al, 2018). This will cause a
reduction in the unemployment. The circular flow of income will be become stable as earlier
as if there is not change. The government will receive revenue in the form of tax duty that is
being levied on the electric vehicles which is less than the fuel based vehicles and along with
that there will be a stable demand and supply in the market after some time resulting into
recovering of the economy in the short run. Everything will seem to be normal as it will give
back the jobs and not having much impact over the inflation.
Thus, it can summarize from the above that the steps taken by the UK government
with the aim of reducing the negative impact it has over the environment which is causing
risk to the public health. It aims to overcome the climatic crisis caused by it. The target set by
the government is very well and if the policies ae being implemented in the right direction it
will result int accomplishment of the success. It will have an impact over the aggregate
demand and supply but after some time it will get back to its normal position and doesn’t
seem to be a big thing. The manufacturers have already adopted the latest technology and
working on bringing in the electric vehicles for the meeting the changed governmental plans
along with meeting the future requirements.

REFERENCES
Books and Journals
Alam, M. S. and et.al, 2018. Analysing the Co-Benefits of transport fleet and fuel policies in
reducing PM2. 5 and CO2 emissions. Journal of cleaner production. 172. pp.623-
634.
Alberini, A. and Bareit, M., 2019. The effect of registration taxes on new car sales and
emissions: Evidence from Switzerland. Resource and Energy Economics. 56. pp.96-
112.
Bennett, R. and Vijaygopal, R., 2018. An assessment of UK drivers’ attitudes regarding the
forthcoming ban on the sale of petrol and diesel vehicles. Transportation Research
Part D: Transport and Environment. 62. pp.330-344.
Hill, G. and et.al, 2019. The role of electric vehicles in near-term mitigation pathways and
achieving the UK’s carbon budget. Applied Energy. 251. p.113111.
Mattioli, G., Wadud, Z. and Lucas, K., 2018. Vulnerability to fuel price increases in the UK:
A household level analysis. Transportation Research Part A: Policy and
Practice. 113. pp.227-242.
Namdeo, A. and et.al, 2019. Land-use, transport and vehicle technology futures: An air
pollution assessment of policy combinations for the Cambridge Sub-Region of the
UK. Cities. 89. pp.296-307.
Turner, K. and et.al, 2018. Framing policy on low emissions vehicles in terms of economic
gains: Might the most straightforward gain be delivered by supply chain activity to
support refuelling?. Energy Policy. 119. pp.528-534.
Yan, S., 2018. The economic and environmental impacts of tax incentives for battery electric
vehicles in Europe. Energy Policy. 123. pp.53-63.