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Chancellor cuts fuel duty and axes escalator

23 March, 2011

Chancellor George Osborne has thrown retailers and motorists a lifeline by announcing a 1ppl cut in fuel duty from 6pm on March 23 and announced an end to the fuel duty escalator.

The fuel duty escalator, which would have added 5ppl at the pump this month, will be replaced by a fair fuel stabliser, which will see fuel prices increase by inflation only when oil prices are high.

There will also be a change to how the Supplementary Charge on oil and gas production works. As a result of higher oil prices UK oil and gas production is more profitable; the Supplementary Charge will therefore increase to 32%.

In future years, if the oil price falls below a set trigger price on a sustained basis, the government will reduce the Supplementary Charge back towards 20% on a staged and affordable basis while prices remain low.

Chairman of RMI Petrol Brian Madderson described the Budget as a “fantastic outcome”. “We wrote to the Chancellor on March 21 and he has virtually agreed with and responded to each of the recommendations we gave him,” he said.

“The great news is the fuel duty escalator will be scrapped until at least 2015 and the increase that was due this April will be delayed until 2012.”

Madderson added that the introduction of the fair fuel stabliser will need to be examined further. “It’s a rough and ready stabliser – it’s not a precise mechanism – so we need to read the small print. And the Chancellor didn’t say anything about the exchange rate. At the beginning of this year the pound was $1.55 and last night it was $1.63 so the pound has strengthened against the dollar.

“If the pound remained $1.55, pump prices would be 2.5ppl higher than they are now so that just shows that a relatively small movement in the exchange rate can make a big different at the pump.”

Madderson has written to the Chancellor asking for further details about the stabiliser.

Osborne also revealed that the 2011-2012 inflation-only increase in fuel duty will be deferred to January 1, 2012 and the 2012-2013 increase will be implemented on August 1, 2012, resulting in an 8ppl increase through the course of next year, according to Madderson.

Duties on tobacco and alcohol will also be shaken up. There will be a 2% above inflation increase on cigarettes, and duty on hand-rolling tobacco will be increased by a further 10%.

From October 1 this year, the government will also introduce an additional duty on high-strength beers, and a reduced rate of duty on lower-strength beers to encourage their production and consumption.





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