Budget announces fuel duty cut

The Chancellor George Osborne made a surprise announcement announcement that fuel duty was to be cut by 1 penny per litre from 6pm yesterday as he delivered his first full Budget speech on Wednesday afternoon (March 23, 2011).

While the speech was largely short of good news for the economy as the Chancellor revised down his expected  forecast for 2011 to 1.7 per cent, the Chancellor did make some pleasing announcements for hard-pressed motorists and businesses. Firstly, while it was much expected that a 1 penny rise in duty planned for April would be scrapped, the Chancellor surprised and pleased motorists everywhere by actually reducing fuel duty and deferring a 4 pence increase above inflation until 2012.

This deferment will be funded by the introduction of a ‘fair fuel stabiliser’ which will be introduced from today (Thursday March 24). It is expected to raise an extra £2bn by increasing supplementary charge on North Sea oil and gas production from 20 per cent to 32 per cent. The money will be used to delay a rise in fuel duty, as planned under the fuel duty escalator, until next year. The fuel duty escalator will remain cancelled for as long as oil companies are benefitting from record-high oil prices.

However fuel duty cuts won’t save motorists pockets in the long run, warns the Institute of Advanced Motorists (IAM).

IAM chief examiner Peter Rodger said: “Reducing fuel duty is a welcome break for hard-pressed motorists and businesses, but eco-driving is the only guaranteed way to reduce motoring costs. It’s no longer an ethical choice, it’s a money-saving essential – especially in rural areas where driving is a necessity. The best fuel-saver is a light right foot and anticipating the road ahead.”

Osborne also announced an increase in the Approved Mileage Payments (AMAPs), the first increase since 2002. These rates set the limit for which employees can be reimburse employees for  business mileage they undertake in their own cars without incurring tax. The rate for the first 10,000 miles increases now from 40p to 45p per mile.

The Budget also saw Osborne pledge that any further changes to VED and company car tax would be closely linked to green credentials to further encourage the uptake of lower emission vehicles. A small increase is expected in VED in line with inflation, but VED will be frozen for hauliers to help the struggling HGV sector. Furthermore company car tax for 2013 will be frozen for cars emitting under 95g/km CO2 while there will be a 1 per cent rise for those emitting above that level.

The fixed figure used to calculate the rate of tax on free fuel provided to employees for private motoring is to increase from £18,000 to £18,800 from April 6, 2011. For vans the charge for company vans will increase from £500 to £550. This means the company car fuel benefit charge will range between £1,880 and £6,580 according to usage.

There was no announcements about whether further funds would be given towards the Plug-in Car Grant scheme, which has been allocated just £43 million available until 31 March 2012.

Author: Faye Sunderland, March 24th, 2011
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