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Budget 2022: Chancellor makes 5p cut to fuel duty UK

Sarah Tooze

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Sarah Tooze

Chancellor Rishi Sunak holding the red briefcase outside No. 11 Downing Street

Chancellor Rishi Sunak cuts fuel duty by 5 pence per litre but no change to VAT on fuel in the Spring Budget 2022.

petrol pump unleaded

Chancellor Rishi Sunak responded to record fuel prices in the Spring Budget today (Wednesday 23 March 2022) by cutting fuel duty by 5p per litre (ppl). 

The cut takes effect from 6pm tonight and will apply for 12 months - until March 2023. 

The tax cut is worth £2.4 billion and Sunak said it was “the biggest cut to fuel duty rates ever” and only the second time in 20 years that fuel duty has been reduced in the UK. 

It means a one-car family will now save, on average, £100. 

Fuel prices have risen dramatically since Russia - the world’s second largest producer of oil - invaded neighbouring Ukraine on 24 February 2022. 

The price of a barrel of oil peaked at $139 recently (a figure not seen since 2008) and new record pump prices have since been set on an almost daily basis. 

Motorists are still currently facing eye-watering petrol and diesel prices - it now costs close to £100 to fill a 55-litre diesel car, up from £69.67 in 2021. 

Record fuel prices are part of the mounting cost of living crisis the UK is facing, which has increased with the Russia-Ukraine war and subsequent economic sanctions. 

The Centre for Economics and Business Research (CEBR) predicts the conflict will cost each British household £1,259 in 2022 via higher prices for energy, food and other essentials. 

The Office for Budget Responsibility (OBR), which published its economic and fiscal outlook ahead of the Spring Statement, has said there is “unusually high uncertainty around the outlook", Sunak told the House of Commons. 

“It is too early to know the full impact of the Ukraine war on the UK economy but their initial view, combined with high global inflation and continuing supply chain pressures means the OBR now forecasts growth this year of 3.8%,” Sunak said. 

“The OBR then expects the economy to grow by 1.8% in 2023 and 2.1%, 1.8% and 1.7% in the following three years.” 

Inflation, meanwhile, is expected to average 7.4% this year, after rising to 6.2% in February 2022. But it is predicted by the OBR to be under control in 2024, with the economy then growing again. 

Road tax VED system is changing in 2021.

What difference will the Chancellor's 5p fuel duty cut make?

Fuel duty and VAT (at 20%) make up the majority of the price of a litre of fuel.

The Government has said the 5p cut to fuel duty (from 57.95p per litre to 52.95p) will save the average UK car driver around £100 and the average van driver around £200, based on average fuel consumption.

However, RAC head of policy Nicholas Lyes suggested the cut does not go far enough. 

He said: “With petrol and diesel prices breaking records almost daily, and the cost to fill up a petrol car at over £92 and a diesel at nearly £100, we’re pleased to see the Chancellor has given drivers some much-needed relief at the pumps, but the reality is that a 5p cut in duty is something of a drop in the ocean. 

"In reality, reducing it by 5p will only take prices back to where they were just over a week ago."

He added that drivers will not notice the difference at the pumps until retailers have bought new fuel in at the lower rate - and that is assuming they pass the cut on.  

"There’s also a very real risk retailers could just absorb some or all of the duty cut themselves by not lowering their prices," he said. 

"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."

Cut to VAT on fuel 

Motoring groups were also calling for a cut to VAT on fuel, prior to the Spring Budget and Lyes said that this would have been "more progressive" than the 5p fuel duty cut. 

“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," he said. 

"It’s also the case that the Treasury is benefitting 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.”

2022-2023 road tax rates 

The standard rate of road tax VED for cars registered after 2017 has increased by 6%, which means the tax you pay after year one has increased from £155 to £165. 

The first-year road tax has also been adjusted to hit high-polluting cars.

Read our guide to the 2022-2023 Road Tax rates, VED bands and costs

Nissan Leaf charging

Incentives for electric cars

There were no incentives for electric car drivers in the Spring Budget 2022 - unless they are considering fitting solar panels to their homes for EV charging, with Sunak announcing that there will be no VAT charge on this for the next five years. 

The Society of Motor Manufacturers and Traders (SMMT), the AA and the RAC have been calling for a 'fairer' approach to VAT on electricity, following the launch of the FairCharge campaign. 

Currently, drivers who charge their electric car at home pay 5% VAT whereas those who have to rely on public charge points pay 20%. 

FairCharge and the RAC believe this is an unnecessary barrier to switching to an electric car for the 38% of people who aren’t able to charge an EV at home as they would have no choice but to rely on the public charging network.

Although the FairCharge campaign has cross-party support from both Houses of Parliament it has not yet reached the 100,000 signatures needed to be considered for debate in Parliament. 

The SMMT has also been calling for an extension to the Electric Vehicle Homecharge Scheme (EVHS) beyond 2025 to "ensure EV uptake remains on track to meet Government’s net zero deadlines".

The EVHS is being scaled back dramatically. From April it will no longer be open to homeowners (including people with mortgages) who live in single-unit properties such as bungalows and detached, semi-detached or terraced housing. 

Installations in single-unit properties need to be completed by 31 March 2022 and a claim submitted to the Driver and Vehicle Licensing Agency (DVLA) by 30 April 2022.

The scheme will remain open to homeowners who live in flats and people in rental accommodation (flats and single-use properties). 

No announcement on electric car owners paying road tax

The Chancellor did not make any announcement around introducing road tax (VED) for electric car drivers

There have been repeated calls for the Government to address the potential £35 billion 'black hole' in  its tax-take from the switch to electric cars. 

The Transport Select Committee has recommended that the Government set out a range of options - one of which should be road pricing - to replace the potential 'lost' fuel duty and vehicle excise duty. 

The Committee says that these should then be submitted to an arm’s length body for evaluation by the end of 2022. 

The infrastructure challenge and potential privacy concerns around road pricing make it difficult for this issue to be tackled in the short-term. 

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