Budget 2011

Cut in duty welcome

23 March 2011

A freeze in fuel duty and a 1p cut, rather than the 5p increase planned, prevents more pain at the pumps and applies a 'much needed tourniquet to drivers haemorrhaging money from record pump prices', says the AA. However, volatile oil prices may once again drain much of the benefit of the freeze announced today.

"We and millions of AA members, two-thirds of whom have cut back because of record fuel prices, applaud the Chancellor's decision to listen to the AA campaign to cut fuel duty rather than hike it by 5p a litre. A £2.50-a-tank hike would have been the last straw for poorer drivers who spend a quarter of their household income on motoring," says Edmund King, the AA's president.

This action has probably stopped a 'summer of discontent' and is a common sense move. Any increase in duty would have bled many drivers on low incomes dry so this action offers short-term first aid.

However, with jittery stock markets and tensions in North Africa pushing the oil price back into the $115-$120-a-barrel price range, pressure on pump prices and inflation could grow again.

After all, petrol prices were 5p a litre cheaper only as far back as the end of January. The early January increase in VAT and duty is already bringing in an extra 5p/litre for The Treasury.

Vulnerable groups

The Government will have to consider further help targeting vulnerable groups, such as volunteer drivers, rural public transport and poorer rural drivers.

Despite the freeze more than 80p in the price of every litre of fuel goes directly to the Treasury so the Government is already taking more than its fair share from drivers.

The Fair Fuel Stabiliser is an idea first mooted by the AA and we are pleased it is being considered. This should bring more certainty to the market.

Approved mileage rates

The increased approved mileage rates from 40p to 45p are long over-due and very helpful.

Companies have been insulated against higher fuel costs while employees, charity workers and midwives using their own cars for work have borne the burden and in effect taken a pay-cut.

We will need to study the impact of company car tax changes to encourage greener motoring.

The extra £100 million for potholes is welcome but billions still need to be spent to bring all roads up to scratch.

Budget summary

  • Fuel duty will be cut by 1p/litre from 6pm today – this will take time to feed through to forecourts as duty is applied at the time the fuel leaves the refinery.
  • The fuel duty escalator is to be replaced with a fair fuel stabiliser. When oil prices are high, as now, fuel duty will increase by inflation only.
  • The 2011–12 inflation-only increase in fuel duty will be deferred to 1 January 2012.
  • The 2012–13 increase in fuel duty will be implemented on 1 August 2012.
  • In future years, if the oil price falls below a set trigger price ($75/barrel) on a sustained basis, the Government will reduce the Supplementary Charge back towards 20% (from a new rate of 32%) on a staged and affordable basis while prices remain low. Fuel duty will increase by RPI plus 1p/litre in each such year.
  • Vehicle excise duty rates will increase by RPI indexation only in 2011–12.
  • The Approved Mileage Allowance Payments (AMAPs) rate will rise to 45p/mile for the first 10,000 miles and 25p/mile thereafter.
  • In addition to claiming AMAPs rates, an allowance for passenger payments currently in place for business employees, at 5p per passenger per mile, will be extended to volunteers.
  • The Government has formally submitted a derogation request to the European Commission for a rural fuel duty rebate pilot scheme. This is intended to deliver a 5 pence per litre duty discount on petrol and diesel across the Inner and Outer Hebrides, the Northern Isles, the islands in the Clyde and the Isles of Scilly.
  • To encourage businesses to use ultra-low carbon cars Company Car Tax for cars emitting less than 95g/km will be frozen from April 2013. Company Car Tax for all vehicles with carbon dioxide emissions between 95g/km and 219g/km by 1% from the same date.

Factfile

1p off duty will cut 50p off a typical 30-litre refill

A two-car family will save £2.12 a month on petrol

The freeze in duty rather than the 5p hike (plus VAT makes it about 6p) planned should help save 'Mondeo Man' £4.20 when filling up his 15.4gallon tank.

For the average car, the monthly cost of petrol would have gone up £6.37, or £12.74 for the two-car family.

With petrol averaging 133.50p/litre yesterday, the 6p increase would have pushed the pump price of petrol to within half a penny of £1.40 a litre

The price of a litre of unleaded consists of approximately 59p duty and 22p VAT.