Fuel duty cut eases motoring cost

Motoring costs should fall for families and businesses as a result of fuel duty changes announced in the Budget.

Chancellor George Osborne announced a 1p per litre cut in fuel duty in response to a recent surge in global oil prices, effective from 1800GMT.

He also said he would cancel a fuel duty escalator that would have pushed fuel costs higher.

An inflation-linked rise in the fuel duty planned for next week was delayed until next year.

“It’s about doing what we can to help with the high cost of living and the high cost of oil,” the chancellor said.

Escalator cancelled

The fuel duty escalator was initially introduced by the previous government, Mr Osborne pointed out.

“The fuel duty escalator, that adds an extra penny on top of inflation every year, will be cancelled,” he said, “not just for this year, or next year, but for the rest of this Parliament”.

Under the old system the fuel duty would have risen by the rate of inflation, plus 1p per litre.

Instead, the fuel duty will fall by 1p per litre.

“We will delay the inflation rise in duty planned for next week until next year – and also delay the April 2012 inflation rise until the following summer.”

Oil firms taxed

The cut will be financed by taxing the oil industry, Mr Osborne said.

“The price of oil has risen 35% in just five months,” he said. “Oil companies are making unexpected profits.”

Hence, he would introduce what he described as a “fair fuel stabiliser”.

“From tomorrow the supplementary charge levied on oil and gas production will increase from 20% to 32%,” he said.

This, he said, would raise an additional £2bn ($3.3bn).

“I don’t want important investment in the North Sea lost,” Mr Osborne continued.

Hence, “if the oil price sustains a fall below $75 – and we will consult on the precise figure – we will reintroduce the escalator and reduce the new oil tax in proportion”.

In other words, there would be no fuel duty escalator when oil prices are high, and no additional oil tax when oil prices are low, he explained.

Mixed responses

Motoring organisations welcomed the changes.

RAC Foundation director Professor Stephen Glaister said: “Thirty four million drivers will welcome this, as will hauliers.”

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Watch: George Osborne announces changes to motoring costs

AA president Edmund King said “this action has probably stopped a ‘summer of discontent'”.

But environmentalists did not.

“In the face of a global oil crisis, this Budget will increase the UK’s oil addiction,” said Andy Atkins, executive director of Friends of the Earth.

Wary consumers

Business leaders have warned about the effect of rising fuel prices on consumer sentiment.

“Fuel and fuel price inflation is playing its part in driving the pressure on customers’ budgets,” said Justin King, chief executive of supermarket chain and petrol retailer Sainsbury’s.

“The consumer is very, very wary of the future.”