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What does the ‘fuel duty freeze’ mean for you?

One of the many headlines from the recent Conservative Party Conference is Theresa May’s announcement that the freeze on fuel duty will continue. There had been recent speculation that a raise in fuel duty was being considered by the Chancellor to fund the NHS. This was met with dismay by motorists. So, what does this fuel duty freeze mean to you?

What is fuel duty?

Fuel duty is a tax payable on fuel used for vehicles and other purposes, like heating. It is already included in the price you pay for petrol at the pumps. There are different rates of fuel duty for different types of fuel, all set by the government. Diesel, petrol, bioethanol and biodiesel are all at a rate of 57.95p per litre. This means that for every litre you buy, 57.95p goes directly to the Treasury. The Office for Budget Responsibility estimates that this will make £282.bn for the Treasury in the 2018-19 tax year.

Is fuel duty the only tax we pay on fuel?

No, we also pay VAT on fuel. This is 20% basic rate on most vehicle related fuel and 5% on fuel for heating our homes.

Who is pleased about this fuel duty freeze?

Obviously, the Prime Minister is positive about this continued price freeze, saying in her speech that her party are on the side of families having “little bit of money left to put away at the end of the month”. She said: “It’s the joy and precious memories that a week’s holiday with the family brings. It’s the peace of mind that comes with having some savings. Many people in towns and cities across our country cannot take these for granted. They are the people this party exists for. They are the people for whom this party must deliver.”

Other MPs fully supported Theresa May’s position, as reported in the Guardian, Roger Halfon said: “Motorists are safe for another year. I’m delighted that the Treasury has listened to millions of drivers across the UK. The fact remains that lower fuel duty means a boost to the economy.”

The other side of the argument

This isn’t embraced by all, with environmentalists seeing a missed opportunity to discourage the excessive vehicle usage that is polluting our air.

Green Party MP, Caroline Lucas said: “Dirty air is killing thousands of people every year, and the government is breaking the law with its negligent failure to cut pollution. The last thing we need is another subsidy to encourage more cars on to our roads. Instead of paying for petrol, she should be investing that money into modernising our creaking public transport network and making our streets safe for walking, cycling and breathing.”

The Chancellor Phillip Hammond also isn’t entirely behind the continued freeze, as it limits his power to raise funds through this tax. He said that the fuel duty freeze has a “…significant cost to the exchequer, but the high oil price and the near-record pump price of petrol and diesel are also imposing a significant burden on motorists”. The Institute for Fiscal Studies estimates that not increasing the rate of fuel duty costs £9bn a year in possible tax payments into the Treasury.

The main short term impact for motorists is that your petrol and diesel prices will not rise due to increased tax rates. Good news for our immediate budgets, the future costs are as yet unknown.

October 9th, 2018|Tax News|

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