Chancellor Jeremy Hunt confirmed in his Spring Budget fuel duty will remain frozen for a thirteenth consecutive year – and he will extend the 5p-a-litre cut for another 12 months.
Easing some of the burden of higher petrol and diesel prices on Britain’s motorists, during his statement in the commons on Wednesday, Mr Hunt said: ‘Because inflation remains high, I have decided now is not the right time to uprate fuel duty with inflation or increase the duty.
‘For a further 12 months I’m going to maintain the 5p cut and freeze fuel duty too.’
It is estimated the freeze will save drivers around £6billion-a-year, with the RAC calculating that the 12-month extension to the 5p-a-litre fuel duty will save motorists around £3.30 each time they fill up.
Relief at the pumps for motorists: Fuel duty will remain frozen and the ‘temporary’ 5p-a-litre cut to the tax introduced last year has been extended, it was confirmed today
The freeze means fuel duty will remain at 57.95p per litre, as it has done since March 2011.
Rishi Sunak’s ‘temporary’ 5p cut on the fuel tax introduced last year in a bid to stave off escalating pump prices will also be extended until March 2024, meaning duty will stay at 52.95p for the next 12 months.
The news comes as a huge relief to the nation’s drivers after fears prices could soar by 12p-a-litre from this month.
Following last year’s Autumn Budget, the Office for Budget Responsibility’s (OBR) economic and fiscal outlook report pointed to a ‘planned 23 per cent increase in the fuel duty rate’ this month in its analysis.
It said the hike would add £5.7billion to Government receipts next year and represent a ‘record cash increase’.
Chancellor Jeremy Hunt said during his Spring Budget statement that fuel duty will remain frozen and the 5p cut extended for a year due to inflation remaining high
MPs warned the Chancellor that hiking fuel prices would be ‘political suicide’, especially with the cost of petrol and diesel hitting an all-time high in the previous 12 months and remaining relatively steep today.
According to the latest RAC Fuel Watch figures, the average price of a litre of petrol in the UK on Tuesday was 147.28p, while diesel cost 166.05p.
Mr Hunt told the commons that the fuel duty freeze and extension to the 5p-a-litre cut will ‘saves the average driver £100 next year and around £200 since the 5p cut was introduced’.
Priti Patel, who last week handed a 121,000-signature petition in to Downing Street urging Jeremy Hunt to freeze or cut fuel duty, described the announcement as ‘a great victory for drivers campaigning to keep fuel costs down and families and businesses across the country will welcome the Chancellor’s decision to maintain the freeze on fuel duty’.
FairFuelUK campaigner, Howard Cox, celebrated Mr Hunt’s decision, saying: ‘The longest ever consumer tax levy freeze, thankfully continues.’
Also responding to the news, Steve Gooding, director of the RAC Foundation, added: ‘It might be tempting to see the fuel duty freeze in terms of a give-away to motorists, but really it is a boost to the economy.
‘Fuel prices are huge part of the household budget of many millions of people and a massive cost to business that is inevitably passed on to consumers.’
RAC head of roads policy Nicholas Lyes says the 5p cut has given drivers ‘much-needed relief’ in what has been the ‘most torrid year ever at the pumps’.
‘Given the importance of driving for consumers and businesses, duty should be kept low to help fight inflation,’ he added.
Fuel duty makes up 36% of what drivers of petrol cars pay at the pumps currently, while it is almost a third (32%) of what diesel owners pay when they fill up
How much of the price of fuel is tax?
With petrol costing just over £1.47 per litre, fuel duty accounts for over a third (36 per cent) of what drivers are paying at the pumps today.
VAT at 20 per cent is also charged on fuel, meaning taxation makes up over half (53 per cent) of what motorists filling up with unleaded fork out each time they visit a forecourt.
For diesel at a UK average of £1.66 yesterday, fuel duty at 52.95p accounts for 32 per cent of the total fuel bill, while VAT bumps the total to 49 per cent of the full price paid at a filling station.
‘For every litre of petrol and diesel sold to motorists on the forecourts the Chancellor is still taking about half of the pump price in tax, a mix of fuel duty and VAT,’ said Steve Gooding from the RAC Foundation.
‘In cash terms, that’s about £40 every time the tank of an average car is filled up.’
How much does the Government generate from fuel duty each year?
Fuel duties represent a significant source of revenue for the Government – in fact, it’s the fifth largest of all taxes in terms of incoming funds.
Based on 2022/23 predictions by the OBR, fuel duties are levied on purchases of petrol, diesel and a variety of other fuels raise £25billion per year for the Treasury.
That estimation is inclusive of the 5p-a-litre cut and duty at a rate of 52.95p a litre.
This represents around 2.8 per cent of all receipts and is equivalent to around £900 per household and 1 per cent of national income.
What does the Government spend fuel taxation on?
Combined with Vehicle Excise Duty (car tax), the Treasury generates around £35billion per year from vehicle and fuel taxation.
Around 20 per cent of this is spent on road maintenance budgets, with the rest used for general government expenditure.
Fuel duty was gradually increased between the years 2001 and when it was cut and then frozen back in March 2011. It has remained at 57.95p since but Rishi Sunak announced a ‘temporary’ 5p-a-litre cut last year – something that Mr Hunt has extended
For how long have drivers paid tax on road fuel?
Incredibly, fuel duty has been around for over a century with a petrol duty first introduced as part of the Finance Act 1908 – which was also called the ‘People’s Budget’. It set out a taxation of a thruppence (3d) per gallon.
By 1915, this had doubled to 6d, albeit with a 50 per cent rebate for commercial vehicles.
However, just four years later it was abolished under the Finance Act 1919 in light of the first introduction of vehicle taxation and the tax disc. Unlike Vehicle Excise Duty today, taxation then was calculated in accordance to the horsepower rating of a car.
Fuel duty increases (and cuts) since 2001
7 March 2001: 45.82p
1 October 2003: 47.10p
7 December 2006: 48.35p
1 October 2007: 50.35p
1 December 2008: 52.35p
1 April 2009: 54.19p
1 September 2009: 56.19p
1 April 2010: 57.19p
1 October 2010: 58.19p
1 January 2011: 58.95p
23 March 2011: 57.95p
23 March 2022: 52.95p
*Fuel duty cuts in bold
With the price of fuel declining dramatically in the following years, the Government reintroduced a petrol duty at a rate of 4d per gallon in 1928 and the levy rose gradually as years progressed.
It wasn’t until 1993 under a Conservative Government led by John Major that tax on fuel began to climb at a significant rate.
In the March 1993 Budget, then Chancellor Norman Lamont hiked fuel duty by 10p per litre and introduced a ‘Fuel Price Escalator’ that was initially set at 3 per cent ahead of inflation per year – though that was increased to 5 per cent later the same year.
The escalator was increased to 6 per cent in 1997 under the Tony Blair premiership, with Gordon Brown taking control of the red box.
As the coalition government took power in 2010, the duty on fuel was increased to 58.19p in October and again to 58.95p in January 2011 – the highest it has ever been.
In March 2011, it was announced that the fuel price escalator would be replaced with a ‘Fuel Duty Stabiliser’, along with the level being trimmed back to 57.95p – the same value it remained for 11 years.
The aim of the stabiliser was to increase fuel duty if oil prices dropped below $75 a barrel, though it has remained frozen at the same rate for over a decade.
How will the Government plug the £25bn-a-year fuel duty hole when drivers switch to electric vehicles?
One of the big issues facing the Chancellor in the coming years is how he intends to plug the sizable black hole in Treasury coffers when electric cars become mainstream and taxation on petrol and diesel, as well as VED on emissions, is no longer applicable.
While Mr Hunt announced in his 2022 Autumn Statement that all EV drivers will retrospectively be forced to pay excise duty on their vehicles – some having to fork out over £500-a-year – there is still no clear direction being taken to plug the fuel taxation hole.
The most likely resolution will be a shift to a road pricing scheme, with motorists charged by the number of miles they travel. This can be tracked using telematics technology fitted to vehicles.
The scheme is the preferred option put forward by the Transport Select Committee last year as part of a comprehensive report.
However, Mr Hunt has stepped back from the idea and not yet engaged with the committee’s recommendations.
Conservative MP Iain Stewart wrote to the Chancellor earlier this month, stating: ‘It is discourteous both to my committee and to the witnesses who freely gave their time and expertise, both in writing and in person, that your department has not meaningfully engaged with the substance of our report nor responded to the specific conclusions and recommendations made.’
How do UK fuel prices compare with European nations?
Analysis by the RAC Foundation shows that UK average petrol prices are the twelfth highest across all European nations.
Denmark is the most expensive, according to the latest data and is the equivalent of 176p per litre compared to the UK average of 147p.
Drivers in Finland, Greece, France, Italy, Germany, the Netherlands, Sweden, Estonia, Belgium and Portugal also pay more for a litre of unleaded than UK motorists.
It not such good news for diesel owners in Britain, with the cost of filling up the third highest of the European countries reviewed.
The latest data shows that only motorists in Sweden and Finland pay more for a litre of diesel currently – 184p and 174p per litre respectively.
That compares to 167p in the UK, which is marginally more expensive than France and Italy.
How YOU can cut your fuel bills: Ten hypermiling tips to help you use less petrol and diesel
With petrol and diesel prices showing no sign of dramatically falling anytime soon, filling up at forecourts is set to be a strain on finances in 2023.
That’s why learning to ‘hypermile’ will benefit all drivers.
This is the name given to a series of energy efficient measures motorists can put into practice to save petrol, diesel or electricity (if you own an EV).
Using really simple hypermiling techniques – like those listed below – ‘can easily save the equivalent of 9p-a-litre’, says the AA.
> Read our top 10 hypermiling tips
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