By Ben Bax, Lightfoot client services director
One of the first announcements Chancellor Rachel Reeves made in her Budget speech was that the 5p fuel duty cut would remain in place.
While any measure that reduces the cost of doing business is a positive, I do wonder if it should have been reinstated.
Here’s why: on a simple level, keeping the fuel duty reduction looked like an easy win for a Government about to impose a higher tax burden elsewhere. Sitting alongside other stated aims, it makes less sense though.
Firstly, some context. In March 2022, then-Chancellor Rishi Sunak brought in the 5p cut during the cost-of-living crisis as fuel prices rose inexorably towards £2 per litre (including VAT). It reduced fuel duty from 57.95p per litre, where it had been frozen since 2011, to 52.95p per litre.
It was a good move then, but fuel prices are now at their lowest level since before the Cost-of-Living Crisis, and continuing at the reduced duty level will cost the Treasury £3 billion a year, Rachel Reeves reckons.
This is on top of the projected reduction in fuel duty revenue of around £13 billion a year by 2030 as the UK fleet continues to electrify. The Government can’t keep taking these hits.
At some point it is going to have to balance the books by raising duties and taxes, or with road pricing. Is your business ready for this?
Where is the financial incentive to drive more efficiently at the moment? When fuel is cheap, it is less of a consideration (I’m sure we all remember the opposite, tentatively crawling along when fuel was near £2 per litre).
But this is the ideal time to put in place fuel management strategies, because you get twice the cost-saving effect - low pump price and improved fuel efficiency when adopting more economical driving behaviours - and are also ready for the inevitable time when prices rise.
So what fleets need to do is manage drivers in a more proactive, predictable and sustainable way. We’ve seen that we can do this: fleets regularly save 15% on their fuel costs when using Lightfoot – saving three to four times the amount of the 5p cut, no matter what the price of fuel.
The fact also remains that a fuel duty cut doesn’t help decarbonisation either. The same emissions come out of the tailpipe, whatever the cost of fuel.
Yet this Government has signalled its commitment to electrification and decarbonisation in a number of ways, including bringing back the 2030 date to ban petrol and diesel-only cars, its Net Zero ambitions announced at COP 29 and long-term planning for electric vehicle taxation.
By keeping the fuel duty cut (and retaining 20% VAT on public charging too) it has made the decision easier for drivers to not switch out of ICE vehicles - either new or used - to more environmentally friendly alternatives.
Ultimately, obtaining savings from temporary mechanisms only gets you so far. It does not address the underlying issue, and that is almost all drivers could drive more economically. And they could improve so much that they far outstrip what is saved from a short-term drop in fuel duty, while also hugely reducing their carbon footprint too.
So the focus should be taking accountability to change driving behaviours that will have both instant and longer term benefits – both economical and environmental, rather than relying on artificially cheaper solutions put in place by the Government that are subject to change at any time.
It mitigates risk too, so that when the day comes that fuel duty does rise again, you have vehicles operating at the maximum efficiency, and producing the minimal amount of emissions thanks to the adoption of more economical driving styles.
Doing this can help protect your business from the extremes of political decisions or geopolitical events, ensuring the last few years of ICE-engined driving can be as efficient and decarbonised as possible.
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