This morning the media has – rightly – hailed the good news that the rise in fuel duty planned for 1 September has been abandoned.
But what exactly was the size of the rise due to have been?
Much of the media has gone for a 3p rise, and indeed were doing so well ahead of yesterday’s statement. Yet in the Budget 2013 document released yesterday by the Treasury, the Chancellor said the rise foregone was in fact 1.89p (P53) to which VAT would have been added:
“Budget 2013 announces that the 1.89 pence per litre fuel duty increase that was planned for 1 September 2013 will be cancelled. This means that fuel duty will have been frozen for nearly three and half years, the longest duty freeze for over 20 years.”
In the grand scheme of things there isn’t much – in absolute rather than percentage terms – between the two, but where might the confusion have come about?
The previous increase was due on 1January 2013 and this was abandoned completely. The amount of this increase was set to be 3.02p – 3p to you and me.
The next cost of living increase was due for 1 April this year but had already been delayed to 1 September. It was this planned increase that the Chancellor shelved completely yesterday. Prior to yesterday no figure had been set for the level of the hike. All that had been said was that the amount would be confirmed in Budget 2013. And it was, but only so it could then be announced that it was never going to be implemented.
According to the Fair Fuel Stabiliser that the Chancellor introduced in Budget 2012 future annual rises in the level of fuel duty would be in line with inflation so long as the price of a barrel of crude oil was above £45 a barrel – it is currently much higher than that. If the price of oil should fall below £45 over a sustained period then the rise in the rate of fuel duty would be inflation plus 1p per litre.
So where does the 1.89p quoted yesterday derive from? Earlier this month we heard that the cost of living as measured by RPI (and this was the benchmark figure outlined in the original FFS formula) was about 3.3%. If you take 3.3% of the current rate of duty of 57.95p per litre you end up with 1.85p; markedly close to the figure of 1.89p mentioned in the Budget yesterday.
Of course this is all academic now because the rise did not go ahead, but while yesterday was undeniably a good day for drivers, it was not quite as good as many of us might have thought.
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By Professor Stephen Glaister, director of the RAC Foundation.
The Budget marks a sad end to a period of keen anticipation for those of us who recognise the vital importance of a reform that would deliver the road infrastructure needed to cope with growing population and economic recovery.
A year ago the Prime Minister recognised the problem and announced an aspiration for pension funds and sovereign wealth funds to step in and provide the necessary capital. Civil service reviews into national roads strategy and the feasibility of new funding and financing models were duly completed in the autumn. But in the Autumn Statement announcements were delayed until today’s Budget.
Except today there weren’t any. The Budget confirmed that the government has no plans to reform Vehicle Excise Duty in the life of this Parliament. That essentially kicks the whole subject into touch.
So what are we left with? There is a possibility that a discussion document on road funding and financing may be published in the summer. There is a possibility that some of the new increased capital spending plans by £3 billion per annum might be for roads: but it does not start until 2015-16, there will be other pressing claims on it and it only amounts to a ten percent increase on current levels.
Meanwhile, there remains nothing for the private sector to invest in. There are some welcome new government funds for maintenance and to relieve pinch points—but there is no proper roads strategy and no committed funding to go with one. We still await a National Policy Statement on roads and railways. We await a promised National Transport Policy. The crucial A14 languishes whilst local controversy over tolls are resolved and a complex local funding packages is negotiated.
The Budget announces “a focus on delivery … an enhanced cadre of commercial specialists in Infrastructure UK who will be deployed into infrastructure projects across Government, and the establishment by the summer of tough new Infrastructure Capacity Plans to drive forward progress in key Government Departments…” So what has been going on over the last year?
It’s all vague talk. Without institutional reform, including some way to bring in new money nothing much is going to happen. Our road network will become less and less adequate for a growing, civilised county.
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If the Chancellor was looking for reasons to freeze or cut fuel duty he need only look at two sets of data:
1) The work on motoring poverty recently carried out by the RAC Foundation.
2) The current pump prices which are nearing record highs despite a supermarket price war.
The latest fuel prices are as follows:
(18th March 2013)
||142.17p (16th April 2012)
||148.04p (16th April 2012)
|Oil (Brent crude per barrel)
||$148 (11th July 2008)
The current rate of duty is 57.95p per litre of petrol and diesel. It has been at this level since March 2011.
As a proportion of the price of unleaded fuel, tax (fuel duty + VAT) makes up 59% of the total.
A proposed 3.02p per litre increase in the level of fuel duty was scheduled to take place on 1st January 2013. In the Autumn Statement 2012 the Chancellor cancelled this increase.
The next fuel duty increase was scheduled for 1st April 2013 but that was postponed (also in the Autumn Statement 2012) to 1st September 2013. It has not been formally announced what the level of this increase will be.
Two weeks ago the RAC Foundation published analysis on the impact of high motoring costs on the poorest ten percent of car-owning households, showing just how deeply they are mired in motoring poverty.
Our work showed that roughly 800,000 car-owning households are spending at least 27% of their disposable income on buying and running a car.
Of a total maximum weekly expenditure of £167, these households saw £44 go on vehicle related purchasing and operating costs, including:
£16 on petrol and diesel.
£8.30 on insurance.
The complete breakdown of these figures, plus figures for other income groups is available here.
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