Spring Budget 2022: fuel duty cut by 5p a litre for a year

The chancellor of the exchequer has addressed spiralling fuel costs for motorists by cutting 5p a litre in fuel duty, reducing the government tax take to 53p a litre.

Rishi Sunak claimed the measure represents the biggest cut ever in fuel duty, and says the cut will be in place until March 2023. The cost to the treasury will be £5bn, he said, which will be passed to drivers in savings at the pump.

The AA is one of the bodies welcoming the cut in duty, but has raised concerns that the savings will not be passed on to drivers at the pumps. “Average pump prices yesterday hit new records, despite the fall in wholesale costs”, noted AA spokesman Edmund King.

The RAC says its calculations show a 5p cut in fuel duty – taking it from 57.95p per litre down to 52.95p – will shave around £3 off the cost of filling a 55-litre family car. It favoured a 5 per cut to VAT instead, bringing the rate down to 15 per cent from the current 20 percent  which would have seen savings of £4 on the cost of filling a family car.

RAC head of policy Nicholas Lyes called the 5p cut in duty “a drop in the ocean”, saying the measure takes prices back only to where they were a week ago, and that drivers will only notice any price cuts once filling stations have bought fuel at the lower rate. Lyes also raised fears that retailers may choose to absorb some of the duty cut and not pass it on to customers.

Labour’s shadow chancellor Rachel Reeves condemned the government’s tax policy and criticised the failure to impose a windfall tax on oil and gas companies, which the party has been calling for.

With cash-strapped drivers now paying £100 to fill up a family car there was intense pressure on Rishi Sunak to throw them a financial lifeline. Record fuel prices in the wake of the Russian invasion of Ukraine have come at a time when inflation is at its highest for three decades and there are imminent rises to National Insurance planned.

While many struggle to run a car, others - such as district nurses who rely on their own cars for work - are having to subside the now-insufficient mileage rates offered by their employers. 

Lower the rate of VAT

An alternative option to lower pump prices would have been a cut in the rate of VAT. It is currently 20 per cent and payable on the oil price plus the fuel duty, so is a tax on a tax. Many around the country, including hard-hit hauliers, are calling for an immediate five per cent reduction. 

The RAC says that motorists are paying 7p more in VAT alone for every litre of petrol bought than they were in 2019. In that pre-lockdown year, the average cost of a litre was £1.25 for petrol and £1.31 for diesel, while in recent days it has hit unprecedented highs of £1.63 and £1.73.

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