UK chancellor announces 5p a litre cut in fuel duty

The chancellor said the move, which starts at 6pm on Wednesday and will last until next March, was “the biggest cut to all fuel duty rates ever”.

Motoring group RAC said the cut would take £3.30 off the cost of filling a typical 55-litre family car, and warned that the measure was a “drop in the ocean” for motorists.

RAC head of policy Nicholas Lyes said: “With petrol and diesel prices breaking records almost daily, and the cost to fill up a petrol car at over £92 and a diesel at nearly £100, we’re pleased to see the Chancellor has given drivers some much-needed relief at the pumps, but the reality is that a 5p cut in duty is something of a drop in the ocean.

“In reality, reducing it by 5p will only take prices back to where they were just over a week ago. With the cut taking effect at 6pm tonight drivers will only notice the difference at the pumps once retailers have bought new fuel in at the lower rate. There’s also a very real risk retailers could just absorb some or all of the duty cut themselves by not lowering their prices. If this proves to be the case it will be dire for drivers. It also wouldn’t be totally unexpected based on the biggest retailers not reducing their prices late last year when the oil price fell sharply.

“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.”

Supermarket chain Asda said it would reduce its pump prices 6p a litre, including a 1p reduction in VAT.

The average price of a litre of petrol has risen more than 40p a litre since last year’s Spring Statement, which means the government is getting an extra 7p per litre in VAT, which is the other tax the government imposes on fuel.

Diesel prices are up by nearly 50p a litre, almost 9p of which is VAT.

The decision to cut fuel duty i will help logistics businesses to afford to keep supplying the nation with the goods it needs in the face of increasing fuel prices and other inflationary pressures, said Elizabeth de Jong, Director of Policy at Logistics UK.

“With average fuel prices reaching the highest level on record and rising inflation, there has been an unstainable burden on logistics businesses which operate on very narrow margins of around 1%; the Chancellor’s decision today will help to ensure operators can continue to afford supplying the nation with all the goods it needs, including food, medicine and other essential items,” she said.

“Fuel is the single biggest expense incurred by logistics operators, accounting for a third of the annual operating cost of an HGV. The cut in fuel duty of 5ppl will result in an average saving of £2,356 per year per 44-tonne truck; this move will help to strengthen the UK’s supply chain during a time of ongoing financial and operational challenges.”