RAC urges Chancellor to freeze fuel duty until 2016

The RAC believes a return to automatic fuel duty increases will be detrimental to the economy and would like to see Chancellor George Osborne freeze it until at least September 2016 in today’s Budget.

David Bizley, chief engineer at RAC, said: “The Chancellor has a very interesting dilemma regarding fuel duty in this year’s Budget as – despite the General Election in May – he has the opportunity to declare his intention to extend the fuel duty freeze. If he does nothing, then it will be increased, unless of course the new government intervenes beforehand.

“If he decides to freeze it again it would be extremely unpopular for any future Chancellor to unfreeze it as soon as they took office. This means Mr Osborne has a great opportunity to endear himself further to motorists with little negative consequence, potentially tying the hands of any new incumbent of No 11.”

While low oil prices have taken some of the pain out of the cost of fuel at the pumps, which is now around 17p a litre cheaper than it was a year ago, fuel remains a major spend for both households and businesses.

With fuel duty at 57.95p, the Government is currently collecting nearly 70% of the cost of a litre in tax (petrol – 111.92p; diesel 118.19p) including around 19p in VAT. This equated to a total of £26.4 billion revenue from petrol and diesel in 2014 – 1% more than the previous year.

If George Osborne does nothing, a scheduled increase in fuel duty for both petrol and diesel of 1p above inflation would take place, taking duty above 57.95p a litre for the first time since his Budget of March 2011 when he cut it by 1p a litre.

Bizley added: “While we no longer have the hugely unpopular fuel duty escalator, operated from 1993 to 1999, which saw ‘real terms’ duty increases go up from 3% ahead of inflation to 6%, fuel duty rises of 1p a litre above inflation were brought in after the Labour Government’s 2009 Budget.

“We hope the Chancellor is forward-looking enough to see the benefit of freezing duty beyond the end of this Parliament so there is no scheduled increase in September, but ideally we would like to see him go a step further and freeze duty until the end of 2016.”