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Chancellor announces fuel duty cut in Spring Statement

A much-anticipated cut in fuel duty has been announced in today’s Spring Statement, bringing some relief to drivers and businesses as fuel prices continue to hit new records.

Chancellor Rishi Sunak announced that fuel duty will be cut by 5ppl from 6pm tonight for 12 months

Speaking in a Spring Statement focused to help families with the cost of living and help the UK ‘level up’, Chancellor Rishi Sunak announced that fuel duty will be cut by 5ppl from 6pm tonight for 12 months. This will lower duty at the pump to 52.95p per litre and reduce the price of diesel by 6p per litre, including VAT, bringing unleaded prices back to around 160ppl and diesel to 170ppl.

It was accompanied by other headline changes – including a cut in the basic rate of income tax by the end of this Parliament, and an increase in the National Insurance threshold (but not the income tax floor) as well as the removal of VAT on energy efficiency home improvements and business rates relief – and will help fleets and drivers who have seen pump prices surge 20p a litre since the start of the year.

The AA said the Chancellor had “ridden to the rescue of UK families and businesses who use their vehicles, not for pleasure, but to function in their daily lives”.

President Edmund King added: “AA research showed that even in November, when petrol pump prices set new records at around 148p a litre, 43% of drivers were cutting back on car use, other spending to compensate or both. That rose to 59% among young drivers and 53% among the lower-paid. Petrol started this week averaging 167p a litre.”

But he warned that the benefit will be lost unless retailers pass it on and reflect a fair price at the pumps. Average pump prices yesterday hit new records – despite the fall in wholesale costs.

King continued: “On top of the duty cut, there has been a substantial reduction in wholesale road fuel costs feeding through to the forecourts since 9 March. That needs to drive lower pump prices also. The road fuel trade shouldn’t leave the Treasury to do the heavy lifting when cutting motoring costs.”

The RAC echoed the comments and said that while the fuel duty cut would bring some much-needed relief at the pumps, the reality is that a 5p cut in duty was something of a “drop in the ocean”.

RAC head of policy Nicholas Lyes said: “In reality, reducing it by 5p will only take prices back to where they were just over a week ago. With the cut taking effect at 6pm tonight drivers will only notice the difference at the pumps once retailers have bought new fuel in at the lower rate. There’s also a very real risk retailers could just absorb some or all of the duty cut themselves by not lowering their prices. If this proves to be the case it will be dire for drivers. It also wouldn’t be totally unexpected based on the biggest retailers not reducing their prices late last year when the oil price fell sharply.”

Asda has already confirmed it will pass the reduction in fuel duty straight on to its customers – from this evening the supermarket will reduce the price at the pumps by 6p per litre which includes the 1p reduction in VAT.

But the RAC said that temporarily reducing VAT would have been a more progressive way of helping drivers, as the tax is applied at the point the fuel is sold, “removing any possibility of retailers taking some of the tax cut themselves to increase their profits”.

And Nicholas Lyes pointed out: “It’s also the case that the Treasury is benefiting hugely from the high fuel prices because of greater VAT revenue. The Chancellor is currently getting 28p a litre VAT on petrol and 30p on diesel – this of course comes on top of fuel duty as VAT is a tax on a tax.”

Fleet sector reaction

The fuel duty cut was welcomed by Lex Autolease, which said that while the electrification journey is the ultimate goal for transport, we must continue to have a holistic approach across all fuel types.

Ashley Barnett, head of fleet consultancy, commented: “An electric future simply can’t happen overnight. While rising fuel prices might trigger a switch to an electric vehicle, the affordability of EVs still remains a key barrier towards mass adoption, with an ICE vehicle the only option for many drivers. Therefore, as fuel prices continue to soar at an alarming rate, it’s welcoming to see the Government take steps to reduce taxes on fuel and alleviate the pressures that businesses and motorists are continuing to face at the petrol pump.”

Meanwhile, Alphabet said the move highlights the importance for fleet managers to use this time to look at electrifying their fleets so they can benefit from lower fuel whole life costs. But Spencer Halil, chief commercial officer, added that more support is needed from the Government to help companies navigate the move to lower-emission vehicles for longer-term sustainability both financially and for carbon emission targets.

But while Zenith Commercial also greeted the news, it said that fleets continue to be hard-hit by cost pressures.

Martin Jenkins, CEO Zenith Commercial and group strategy director, said: “Rising fuel costs are just one of many factors that have hit commercial fleets hard recently. Operators will need support to navigate the short-term cost pressures as they take the significant leap into zero-emission transport models over the next decade. We hope this is just the start of further measures taken by the Government and that the critical role played by commercial fleets will be given due consideration as motoring taxation policy evolves to accompany that transition.”

Meanwhile, Nexus Vehicle Rental, said that while the fuel duty cut showed the Government recognises the need to support individuals and businesses dealing with the rising costs of living, it’s just one challenge that the industry is currently facing, alongside a great shortage of vehicles and parts that are making manufacture increasingly difficult.

CEO David Brennan added: “It is clear that the Government continues to sign-post us towards a green future with the announcement of relief on energy saving measures, with 0% VAT on all energy saving materials, however it was disappointing to not hear of any further support offered to the electric vehicle industry.

“As we move ever-closer to the 2030 ban on petrol and diesel vehicles, there is still more that needs to be done to support EV manufacturers to ensure they are more affordable for businesses. Once again, I must reiterate that enhanced financial support is still needed from the government to increase affordability of the vehicles and ensure there is suitable infrastructure in place for businesses that decide to make this important transition.

“Overall, while today’s budget highlighted that there will be a tough period ahead, we hope that the fuel duty cut will act as a small relief for the fleet industry against the backdrop of the supply shortages and ongoing challenges associated with this.”

And Philip Nothard, insight and strategy director at Cox Automotive, said that a bigger fuel duty cut would have been much welcomed among the auto sector.

“If the UK government had made a more significant cut in fuel duty and followed the example of the Irish government, which confirmed last week that excise duty on fuel in Ireland would be reduced by 20 cents per litre on petrol and 15 cents per litre on diesel, the cost of a 60-litre tank of petrol would have been cut by £10 and diesel by £7.50.

“It is disappointing that the UK government didn’t go further. Logistics businesses were already feeling the effects of recent headwinds, which has done little to allay their long-term concerns. The Government’s decision to not make deeper cuts in fuel price could lead to price inflation across the entire transportation and logistics industry which is already facing several challenges ahead.”

With the OBR having revealed today that UK living standards are set to fall at the fastest pace on record in the post-war period, concerns are also fast-mounting about financial support for consumers.

Nigel Morris, employment tax director at independent accountancy network MHA, said: “The Chancellor’s reluctance to provide much needed financial support for consumers demonstrates an unsettling move away from his previous stance of fulsome aid for struggling households. Although low income households will welcome today’s temporary cut in fuel duty and the increase in the national insurance threshold, in reality these measures fall far short of the financial support the Chancellor should have introduced.

“For example the 5p cut to fuel duty is already funded by increased VAT on higher raw material prices. The rise of the NI threshold from July to £12,570 is perhaps higher than anticipated, but a delay until July will mean the new Health and Social Care levy will bite first. Thirty year-high inflation levels and soaring energy prices also mean raising the threshold will fail to compensate for how much people across the country are worse off than they were before this year began.”

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Natalie Middleton

Natalie has worked as a fleet journalist for over 20 years, previously as assistant editor on the former Company Car magazine before joining Fleet World in 2006. Prior to this, she worked on a range of B2B titles, including Insurance Age and Insurance Day.