Osborne cancels 3p increase in fuel tax

A planned 3p per litre increase in fuel duty has been scrapped by the chancellor in this year’s budget. The increase was supposed to be the first in a series of annual rises.

“We’ve now frozen fuel duty for two years,” said Osborne. “This has not been easy: the government has forgone £6 billion in revenues to date.

"But oil prices have risen again, families' budgets are squeezed and I hear those who want me to do more to help them get by. We have all listened to the people we represent. Today I am cancelling this September's fuel duty increase altogether.

“Petrol will now be 13 pence per litre cheaper than if we had not acted over these last two years to freeze fuel duty. For a Vauxhall Astra or a Ford Focus that’s £7 less every time you fill up."

The latest saving alone is worth around £70 every year for the average two-car family, based on two modern cars that each travel 10,000 miles a year. Fuel duty was last increased by 0.76p per litre in January 2011, before it was cut by a penny in March that year. A 3p increase in fuel duty, planned to be introduced this January, was scrapped.

“This news provides breathing space for families being smothered by the soaring costs of motoring, especially the 800,000 households spending more than a quarter of their income on operating a vehicle,” said Professor Stephen Glaister, director of the RAC Foundation motoring research charity. “Through this move the Chancellor will lose duty and VAT income, but tens of thousands of people will be saved from being forced to give up their cars against a backdrop of generally rising running costs.”

Quentin Willson, from the FairFuel UK campaign said Osborne should have gone further. “This is welcome news for families and businesses across the UK as far as it goes,” said Willson. “It is a sign that the Government is listening, but there will be widespread disappointment that the cancellation of this duty rise gives them no immediate relief from climbing fuel prices. Cancelling a rise that really shouldn't happen is not enough.  The Government needs to cut duty substantially to get the economic growth we all need.”

Drivers are still paying near-record levels of tax on fuel because the increasing cost of petrol and diesel before duty means that drivers are paying more in VAT. Even so, the two-year freeze on fuel duty and improved fuel economy of modern cars has helped to ensure that many motorists are now spending less, in real terms, on fuel than they did decades ago, as Driving illustrated last week.

These gains have been wiped out, however, by increases in other motoring costs such as insurance.