5% fuel duty cut welcome but the government is still making 80p per litre at the pumps

By Katherine Steiner-Dicks Last updated Mar 23, 2022

Are taxpayers aware of how much fuel duty and VAT they pay for every litre of gas they purchase? Photo by Gustavo Fring from Pexels

Fuel duty is a drop in the ocean, says personal finance expert. Others serving self-employed workers are asking for tougher, perhaps unpopular measures

The Spring Statement has cut fuel duty by 5p a litre.
Currently fuel duty costs around 58p a litre, and VAT almost 28p per litre. On a 55 litre tank, £47.30 is tax.
The cost of unleaded petrol is now almost £1.66 a litre on average.
There are also reports that it could raise the National Insurance threshold more than planned (it’s currently set to rise from £9,568 to £9.880). This would protect lower earners from the NI hike, although everyone else would still pay more.
VAT on energy bills from April will be around £99.
The freezing of income tax thresholds is expected to raise £20.6 billion a year by 2026.

“While we all expected a decrease in fuel duty, the 5p trim is a mere drop in the ocean and will not be a significant help for most of us, ” said ChooseMyCar.com‘s Nick Zapolski.

The 5p reduction in fuel duty will see about a £2 saving for most people when they fill the tank.

“It’s lucky so many of us are still remote working as people can’t afford to work! Our research released this week showed that 45% of people admitted they are struggling to afford to run their cars to get to work,” said Zapolski.

A fuel duty cut isn’t enough to ease the horrible squeeze on incomes this spring, according to Sarah Coles, senior personal finance analyst, Hargreaves Lansdown.

While a welcome change, [the 5p fuel duty reduction] would still leave the government making 80p a litre at the pumps.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown

With the cost of unleaded at eye-watering highs, this isn’t going to be enough to stop people from having to make very difficult decisions about how and where they travel in future.

Sandra Wilson, Director at Cottrell Moore, said that the 5p cut in fuel duty will unlikely make a big dent in petrol bills anytime soon.

What would have been a welcome announcement is a change to the mileage allowance of 45p that people can claim, it’s barely covering the cost of fuel let alone the running costs and depreciation that it should be covering.
Sandra Wilson, Director at Cottrell Moore

Julia Kermode, the founder at Nantwich-based advocacy firm, IWork, voiced her concerns that fuel prices are so high workers are having to get a second job just to afford their daily commutes.

“Right now, it’s so bad that many people need a second job so that they can afford their first job. With petrol prices at a record high, reducing fuel duty is a must for the Chancellor and a big win on many levels. Already overstretched families are struggling to survive the spiralling cost of living increases and fuel prices mean that some can’t afford to commute to earn the money they need,” said Kermode.

Kermode was hoping that postponing the proposed National Insurance increase would be another quick fix. But according to Coles, the Chancellor has “refused to shelve the National Insurance hike”, which is coming at the worst possible time for cash-strapped households.

Right now, it’s so bad that many people need a second job so that they can afford their first job.
Julia Kermode, founder at Nantwich-based advocacy firm, IWork

However, there’s the chance the government could raise the income level at which it becomes payable, lifting some lower earners out of paying the tax entirely. How many people this helps depends on just how far the threshold moves.

Rishi Sunak has also hinted that there may be more help for those on lower incomes. This could mean changes to Universal Credit, which is set to rise just 3.1% at a time when inflation is forecast to be as high as 8%. However, it may simply include a fuel payment for some households rather than an across-the-board rise, suggested Coles.

We’re also likely to hear about the expansion of the Warm Home Discount to more people on low incomes and increased payments of £150. However, if there’s no change to the way this is funded, it will mean increasing energy bills for everyone else.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown

Should there be a windfall tax on North Sea oil and gas companies?

Graham Cox, founder of the Bristol-based Self-Employed Mortgage Hub has suggested that hard times call for hard measures.

There are three things the Chancellor should do. First, implement a windfall tax on the North Sea oil and gas companies. They are making enormous profits off the back of soaring energy prices, which could cost the average consumer £3,000 a year by late 2022. In these extraordinary times, when people are having to choose between heating or eating, a windfall tax is the obvious and right thing to do.
Graham Cox, founder of Self-Employed Mortgage Hub

“Unsurprisingly, Rishi Sunak seems ideologically averse to the idea, but ideology isn’t going to keep people warm and fed next winter,” said Cox.

The mortgage specialist is calling for a ban on any purchase of UK properties by foreign investors unless they plan to reside in the UK full-time. He believes in making it “prohibitively expensive” to buy a second property or holiday home through higher stamp duty and/or capital gains tax is another way to ease the cost of living crisis.

“It needs to be discouraged as it prices out local residents from having the chance to buy,” said Cox.

At this stage, people will welcome any help at all in the desperate struggle to make ends meet, said Coles. “Unfortunately, the changes reported so far won’t be enough to make a profound difference to the challenge millions of people are set to face,” she said.