Budget 2020: Future of fuel duty freeze

Rumours of a possible hike in fuel duty continue to circulate ahead of the Budget on Wednesday (March 11).

In an effort to meet climate change targets, the suggestion is that the new Chancellor Rishi Sunak will end the freeze on fuel duty dating back to 2010.

It has also been mooted that the policy will include scrapping the £2.4 billion diesel subsidy for users of farming and construction vehicles.

However, just one-in-10 (10%) motorists are in favour of ending the freeze, according to an RAC survey of 3,200 drivers.

In fact, six-in-10 UK drivers (59%) want the new Chancellor to bolster spending on the country’s crumbling local road infrastructure at next week’s Budget by ringfencing 2p from every litre of petrol and diesel sold without increasing duty rates.

When it comes to what drivers expect the Chancellor to do with fuel duty, rather than what they would like to see happen, the figures are mixed.

An almost-identical proportion think he will put duty up (42%) as expect him to keep it at the current level (41%), with few drivers (6%) expecting any form of cut next week.

The maintenance of England’s ‘strategic’ roads – motorways and major A-roads – has guaranteed investment in the form of the National Roads Fund, where part of the funds raised through ‘car tax’ (vehicle excise duty) are ringfenced.

However, RAC head of policy Nicholas Lyes said: “We’ve said consistently that no such system exists to help better maintain the thousands of miles of roads under local authority control, which isn’t right given the importance of these roads.

“With one of the wettest Februarys ever recorded fresh in the minds of so many motorists, we’re concerned we’re on the verge of yet more pothole misery come the Spring if action is not taken soon.

“We believe the only hope for getting the UK’s local roads up to a standard fit for the 21st century is by ring-fencing a small proportion of the tax drivers already have to pay every time they fill up – and from our survey it’s clear most drivers agree.

“We really are hoping for some fresh thinking on this from the Chancellor in his Budget.”

New analysis by Greener Journeys, however, shows that the Government’s freeze in fuel duty has caused an extra 5 million tonnes of greenhouse gas emissions by encouraging people to abandon public transport in favour of their cars. 

The freeze in fuel duty since 2011 has cost the Treasury more than £50bn in revenue, it says, and has also led to 5% more traffic, 250 million fewer bus journeys, 75 million fewer rail journeys, an extra 5 million tonnes of CO2 and an extra 15,000 tonnes of NOx emissions. 

The Treasury previously estimated that the Government had foregone £46bn in revenues through to 2018/19 by choosing not to implement scheduled rises in petrol and diesel since 2011, and that a further £38bn would be foregone over the next five years. 

The Treasury estimated that the freeze in fuel duty 2011-18 had cost the Government twice as much as we spend on all NHS nurses and doctors each year.

Claire Haigh, chief executive of Greener Journeys, said: “The Chancellor must take the opportunity this week to deliver the UK’s first ever ‘Climate Change’ Budget. 

“As hosts of this year’s COP26 UN Climate Summit, the UK must show leadership on reducing greenhouse gas emissions. 

“Ending the freeze in fuel duty would send a clear signal around the world that the UK is serious about meeting its net zero target.

“Ending the fuel duty freeze would also raise urgently needed revenue at a time when the UK is struggling with the coronavirus, impacts of flooding across the country and its ‘levelling up’ agenda. 

“By nudging people to switch some of their car journeys to bus or train, ending the freeze would also support the public transport networks that are so vital for improving life chances for everyone in society.”

HELP MAKE THE SWITCH TO EVs 

Fleets will be hoping that the Chancellor rubber-stamps new company car tax rates revealed last summer, while motorists also want to see more financial support to encourage them to switch to an electric vehicle (EV).

The RAC survey shows that four-in-10 (41%) of respondents said they would be more attracted to EVs if further incentives were announced in the Budget.

As things stand, the current plug-in car grant – which provides up to £3,500 off the list price of a new pure EV – may not be extended at all after this year, ending the direct financial support given to help drivers go electric.

With the high up-front cost of EVs second only to concerns about EV range on a single charge according to the RAC’s research (28% say the former is their biggest concern, 31% the latter), it is clear the Government needs to continue providing incentives that will encourage more drivers to make the switch to an electric model.

Lyes said: “With a ban on the sale of petrol and diesel cars coming by 2035 if not earlier, now is the time for the Government to show motorists it is serious about helping them make the switch – especially as the default option for so many may be simply to stick with a new petrol or diesel vehicle, or even not change their vehicle at all.

“Already more than 160,000 drivers have gone electric thanks to the Plug-in Car Grant – but with 42m people holding a full driving licence in the UK there remains a long way to go in encouraging many more of us to make the switch.”

VED FOR RENTAL COMPANIES

The Budget should also be used as an opportunity to re-examine the impact of Vehicle Excise Duty (VED) on rental companies and other businesses that keep new vehicles for less than a year, says Meridian Vehicle Solutions. 

Phil Jerome, managing director at the medium-term rental specialist, said that the current inability to obtain a full refund on any outstanding balance from the first VED payment at registration could add hundreds of pounds per vehicle to running costs.

He explained: “The refund received is based on whichever is the lower of the initial registration payment or the rate for the standard, ongoing charge. The latter is usually much lower than the first, so there is often a substantial disparity.

“There appears to be no particular reasoning behind this rule and it effectively adds an additional VED levy on rental companies like ourselves, as well as franchised dealer groups and car manufacturers, that keep most of their cars for less than 12 months.

“We don’t believe that this is in any way an intentional move but was introduced alongside the current VED regime and has certainly had an impact on the costs that we and the rest of the rental industry face.

“It seems to us that it would be fairer to introduce a VED refund scheme that simply returned everything that had been paid on a pro rata basis – and this is something that the industry should be urging the new Chancellor to review.”

He says that the soon-to-be-introduced use of WLTP for calculations of VED as well as a range of general increases would see a substantial upwards movement in costs for rental companies, anyway.

“Generally, it looks as though costs will rise by around 20% on a typical annual charge,” he said. “However, there are also very big individual jumps. For example, some new cars will cost as much as £960 more to register after April 1. These are big increases.”

While Government environmental justifications for higher VED should be respected, says Jerome, the argument should also be made that the rental sector was an important part of the motor industry and one that played an important part in the health of UK PLC.

“Rental businesses not only satisfy an important need for flexible business and personal transport, we also deliver a steady flow of vehicles into the used sector that meet the latest environmental standards,” he added. “The value of this should be recognised.

“Certainly, we’d like to see the Chancellor at least take a look at the first year VED hit that we are taking and provide some kind of explanation of their thinking.”

Fleet News will bringing you the latest from the Budget on Wednesday (March 11).