Budget 2022: Chancellor makes 5p per litre fuel duty cut
Wed, 23 Mar 2022
- Fuel duty cut by 5p per litre
- Cut is set to save the average UK car driver around £100
- No change to VED on fuel
Chancellor of the Exchequer Rishi Sunak announced a 5 pence-per-litre cut to fuel duty in the Spring Budget 2022.
The fuel duty cut is in response to record fuel prices which have soared in the wake of Russia’s invasion of Ukraine on 24 February 2022 and the subsequent economic sanctions.
Motorists have been paying more than 167p-per-litre for petrol, on average, and 179p for diesel, meaning it costs more than £92 to fill up a petrol car and nearly £100 to fill up a diesel car.
The Government said that when compared with uprating fuel duty in 2022-23, cutting fuel duty by 5p will deliver savings for motorists worth over £5 billion over the next year and will save the average UK car driver around £100 and the average UK van driver around £200.
The cut will apply from 6pm tonight (23 March 2022) with Asda, Morrisons, Sainsbury's and Tesco all announcing they will lower prices.
The pressure is now on other fuel retailers to follow suit.
RAC head of policy Nicholas Lyes said: "There’s a very real risk retailers could just absorb some or all of the duty cut themselves by not lowering their prices."
He described the 5p cut in duty as "something of a drop in the ocean" and will mean, in reality, that fuel prices are "back to where they were just over a week ago".
The RAC would have preferred to have seen a cut to VAT, which is applied to every litre of fuel (at the 20 per cent rate).
Lyes said: “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.
"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.”
"The Treasury is benefitting hugely from the high fuel prices." Nicholas Lyes, RAC
There was also no change to the approved mileage allowance rates, which millions of drivers rely on to be reimbursed for using their own car for business travel.
The rates of 45ppm for the first 10,000 miles in the tax year and 25ppm thereafter are set by the Government and are tax free.
They are designed to reflect running costs of a vehicle including fuel, servicing, Vehicle Excise Duty and depreciation. Fuel is around a third of the costs included in the rate.
The Chancellor made changes to road tax rates for cars and vans.
When does the 5p fuel duty cut apply?
Technically the 5p-per-litre reduction in fuel duty applies from 6pm on 23 March 2022. However, the onus is on fuel retailers to apply the saving. Following the Chancellor's announcement, Asda, Morrisons, Sainsbury's and Tesco all said they would lower prices.
Where can I find the cheapest fuel prices near me?
Generally, the big four supermarkets (Asda, Morrisons, Sainsbury's and Tesco) have the cheapest fuel prices. Motorway service stations, in contrast, are usually the most expensive place to fill up.
When will fuel prices go down?
Following the Chancellor's announcement, Asda, Morrisons, Sainsbury's and Tesco have all said they will lower prices.
Longer-term, fuel prices are predicted to fluctuate this year, following the Ukraine war and subsequent sanctions, which includes the UK Government phasing out imports of Russian oil by the end of the year.
Paul Holland, MD of UK Fuel at fuel card provider Allstar Business Solutions, said: "While Russia currently supplies the UK with 8 per cent of its total oil demand, the UK relies more heavily on its own resources as well as those from the Netherlands, Saudi Arabia, and USA. The deadline will allow the industry time to adjust before Russian imports are ceased entirely.
"The developments in Ukraine have already caused fuel prices to reach record highs. The effects of supply chain disruption and sanctions are likely to cause further price volatility for the foreseeable future."
How much profit are fuel retailers making at the moment?
What is the shelf life of diesel?
