What is fuel tax and how will the reduction affect prices?

Rishi Sunak announced in his spring statement that fuel taxes would be reduced by 5 pence per liter over the next 12 months.

The change, which came into effect at 6 p.m. Wednesday, was prompted by rising costs of living, including a rise in the wholesale price of fuel, the Chancellor said.

However, the move appears to undermine the government’s own goals of reducing car use, and charities have warned that the reduction would “largely benefit wealthier households who tend to have larger vehicles and drive more “.

Campaigners said the ad sent a ‘damaging’ message that driving is preferable to using public transport and warned train and bus fares continue to rise while polluting petrol-powered vehicles and diesel were considered subsidized.

What is fuel tax?

Fuel duties or taxes apply to purchases of gasoline, diesel and various other fuels used for both vehicles and home heating.

The level of fuel tax depends on the type of fuel used, with a liter of petrol, diesel, biodiesel and bioethanol resulting in a fuel tax of 52.95p (57.95p before the Chancellor’s spring statement ).

Liquefied petroleum gas (LPG) has a fuel duty of 28.88p per kg, natural gas used as fuel in vehicles eg biogas has a duty of 22.57p per kg and ‘fuel oil’ burned in an oven or used for heating is taxed at 9.78p per litre.

They represent an important source of revenue for the government, raising £28bn in 2019-20, according to the Office for Budget Responsibility, which is equivalent to 3.3% of all revenue.

Last year, Mr Sunak announced that fuel duties would be frozen for the twelfth consecutive time

(Rishi Sunak)

Last year, Mr Sunak used the Autumn Budget to announce that fuel duty would be frozen for the twelfth consecutive time, saving the average motorist £1,900, compared to ” the indexation of rights” which was in place before 2010.

Why is the government reducing fuel taxes?

The government insists the measure – described as “the biggest cash-conditions reduction on any fuel tax rate at once, ever” – is intended to support households and businesses at a time when oil prices are very high.

On Wednesday, crude oil rose 4.1% to $113.75 (£86.15) a barrel, while a barrel of Brent, the international standard, rose 4.7% to 120, $94 (£91.60). Prices are up over 50% in 2022 so far.

However, it will be politically very difficult for ministers to restore the old fuel charge level, let alone increase it, as many argue that it is necessary to meet our climate targets, clean air and active travel, within a year.

What impact will lower fuel taxes have on prices?

Cutting 5p from a liter of petrol does not necessarily mean the petrol will be 5p cheaper at the pump.

Mr Sunak and Business Secretary Kwasi Kwarteng have written to major retailers, trade bodies and the supply chain to lower their prices accordingly.

George Osborne announcing a fuel tax freeze in 2011

“The public will rightly expect to see this historic reduction quickly reflected in the prices displayed on the forecourt,” the letter said, adding that the government wanted those “in the supply chain to pass this reduction on to consumers as soon as possible. as possible”.

AA President Edmund King said “the benefit will be lost unless the retailers pass it on”. If the reduction is fully passed on, it will probably result in a saving of around £3 for a 55-litre petrol car.

With the war in Ukraine showing no signs of ending and the price of a barrel of oil rising dramatically over the past month, refueling a tank will – many rightly say – continue to be expensive. .

What was the reaction?

The Campaign for Better Transport has warned that cutting fuel taxes will do nothing to reduce our dependence on oil or help people switch to more sustainable modes of transport.

Campaigners say cutting fuel taxes will do nothing to reduce our dependence on oil. Promoting cycling is a simple way to achieve this

(PA wire)

Paul Tuohy, Managing Director of Campaign for Better Transport, said: “The financial impact of today’s fuel tax cuts on people’s pockets will actually be minimal, while the message it sends – that driving is preferable to public transport – is much more detrimental. While drivers are getting help to cope with the cost of living crisis, people who depend on public transport are not getting any help to cope with rising fares and face continued service cuts .

Since 2012, rail fares have risen at a faster rate than fuel costs, but rail passengers have faced a 3.8% rise in fares this month (4.8% in London).

Bus fares have increased at a much faster rate, by 54% over the past decade. If the cost of fuel for motorists had risen at the same rate as bus fares, it would now cost well over 200p a liter instead of an average of 167p, the organization said.

Mr Tuohy added: ‘The Department for Transport has been busy supporting bus and rail travel but the Chancellor’s announcement today has cut the rug from under public transport.

Mike Childs, policy manager at Friends of the Earth, said: “The priority should have been to follow New Zealand’s lead in reducing the price of public transport and providing a more affordable alternative to the car. “

Andy Bagnall, chief executive of industry body Rail Delivery Group, said the government ‘cannot make rail less competitive’ than other forms of transport in the long term if it is ‘serious’ to meet targets zero emissions.

Meeting the UK’s climate targets means encouraging the use of public transport and active travel, not driving


“We need a uniform approach to taxes, fares and charges for all modes of transport, so that the cost of each reflects its environmental impact,” he added.

Cycling UK campaign manager Duncan Dollimore likened the fuel tax cut to “a band-aid”.

He said: “A progressive spring declaration would have invested in cycling, walking and public transport for the future.”

The Institute for Public Policy Research, a think tank, said cutting fuel taxes will have little impact on the overall cost of living and will help the better-off more in terms of cash flow than the poorest.

Dr George Dibb, director of the IPPR Center for Economic Justice, said: ‘The Chancellor’s announcements are grossly inadequate and will not help those who need it most. We are entering the biggest income squeeze for a generation and once again the Chancellor has failed to offer the support that many households need.

“Changes to national insurance thresholds and fuel tax cuts will help middle-income families more than those in the bottom 20%, and it will help those who are already the wealthiest even more.”

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