Prime Minister Theresa May used her speech at the Conservative Party Conference to announce that fuel duty will remain frozen for the foreseeable future while stating that her party is on the side of ‘hard working families’ and that a car is a necessity and ‘not a luxury.’
What is fuel duty?
Fuel duty is a tax that is placed on petrol, diesel, biodiesel and bioethanol and is currently set at 57.95 pence per litre. That means every time you fill up at the petrol pump, a significant amount of your cost is fuel duty. The RAC Foundation have shown that this duty amounts to around 60% of the cost of a tank of petrol and 61% of the cost of a tank of diesel. In addition, 20% VAT is added to this cost.
Why is it fuel duty so important?
Rises in fuel duty don’t just affect individuals filling up at the pumps but any business that transports goods. For example, supermarkets transport fresh foods around the country. Any increases in fuel duty would mean their transport costs rise and they could pass on these increases to customers creating a possibility that prices could go up for everyday goods.
When was fuel duty last increased?
Fuel duty was first frozen by then Chancellor of the Exchequer George Osborne in an announcement for the March 2011 Budget. Since that point, it has remained frozen at 57.95 pence-per-litre. Prior to this, fuel had been increased using a fuel duty escalator with regular rises each year.
Why was this announcement made?
Chancellor Phillip Hammond had previously intimated that fuel duty could rise in order to fund the NHS, saying: ‘It is important that we remember the other side of this coin, the fuel duty freezes since 2011 have meant the Exchequer has foregone around £46bn in revenues through to 2018–19 – and a further £38bn will be foregone over the budget forecast period as a result of these previously announced freezes. For context, this is about twice as much as we spend on all NHS nurses and doctors each year.’
He also stated that the fuel duty freeze had been good for motorists, saving the average car driver £850 and the average van driver £2,100.
Even at the current rates, it is forecast that the fuel duty will generate £28.2 billion for the government in 2018–19.
Does this mean that prices will remain the same on the forecourt?
While tax has been frozen, this announcement does not necessarily mean that prices will be low. The price also depends on the wholesale cost of fuel as well as the value of the pound. Individual garages can also set price points that they believe are appropriate. supermarkets often sell fuel at a cheaper rate in order to attract customers. In contrast, service stations often charge higher prices as they claim they provide a greater range of service compared to average petrol stations. In addition, it is more difficult and expensive to transport fuel to rural areas so often prices are higher outside of cities.
What is the average cost of fuel?
As of September 2018, the average cost of fuel is £1.31 for petrol and £1.35 for diesel. You can find out how your fuel price compares to the national average and other countries using the BBC fuel price calculator.