UK Budget 2011: the outcome for motorists

Published: 23 March 2011

UK chancellor George Osborne announced the 2011 budget today - which includes fuel duty cuts and changes to car tax that will affect every motorist in the land.

2011 Budget changes to fuel duty

The Government will cut 1p in fuel duty, effective from 6.00pm tonight. Osborne said the fuel tax cut was designed to offset rising fuel prices, which have burdened every driver with higher bills.

And the current inflation-linked 'fuel price escalator', established by the previous Government, has been abolished. Further fuel duty rises in line with inflation have been deferred until 1 January 2012. The planned 1 April 2012 fuel duty rise will be deferred to 1 August 2012.

To balance the reduction in revenue from fuel consumers, Osborne announced a 'fair fuel stabiliser' policy which will hike taxes for oil companies. The first outcome of this will be raising the tax rate on oil producers from 20% to 32%, resulting in a projected revenue gain of £2bn. 

Both the removal of inflation-linked rises in fuel duty and the imposition of higher taxes on producers are dependent on the market price of oil. The aim, says Osborne, is to avoid over-taxing oil producers when prices are low, and avoid penalising consumers when oil prices are high.

The Government has also issued a proposal to the European Union for a rural fuel duty rebate pilot programme. The pilot programme is proposed for the Inner and Outer Hebrides, the Northern Isles, the islands in the Clyde and the Isles of Scilly, with a proposed fuel duty rebate of 5p per litre of diesel or petrol. 

2011 budget changes to the company car tax system

Company car tax on vehicles emitting less than 95g/km will be frozen from April 2013. Tax rates for vehicles emitting between 95g/km and 219g/km will increase by 1% at the same date. This represents a 5g/km tightening of the existing CO2 bands.

These changes join previously-announced changes due to take effect on 6 april 2011. Company car tax discounts for all alternative fuel vehicles apart from pure EVs will be eliminated, and the £80k price cap on company car purchases for benefit-in-kind tax will also be removed.

2011 budget changes on vehicle taxation and allowances

Vehicle excise tax rate rises will increase only at the rate of inflation for 2011/12, and excise duty rates for Heavy Goods Vehicles (HGVs) have been frozen at current levels.

Approved Mileage Allowance Payments (AMAPs) rates for eligible motorists using their vehicles for work will rise to 45p per mile for the first 10,000 miles, and 25p per mile thereafter. Passenger payments of 5p per passenger per mile for business employees have been expanded to make volunteers eligible for the additional allowance.

The fuel benefit charge multiplier on company-provided fuel for company cars has risen from £18000 to £18800. The fuel benefit charge for vans will be frozen at £550.  Benefit in kind taxes for a company van were also frozen for 2011/2012, at £3000.

2011 budget changes to road maintenance and construction

Following on from a February 2011 announcement of an additional £100m for road repair following damage caused by effects of the 2010 winter, the Government announced an additional £100m for use by local authorities to repair potholes. This will be funded from within the existing budget.

Industry and community reactions to the 2011 budget

AA president Edmund King
'We and millions of AA members, two-thirds of whom have cut back because of record fuel prices, applaud the Chancellor's decision to listen to the AA campaign to cut fuel duty rather than hike it by 5p a litre. A £2.50-a-tank hike would have been the last straw for poorer drivers who spend a quarter of their household income on motoring.'

RAC Foundation director Prof Stephen Glaister
'The Chancellor has done the simple and correct thing in cutting fuel duty immediately and 34 million drivers will welcome this, as will hauliers. He is also right to link the level of duty to the underlying price of oil rather than use above inflation rises to indiscriminately raise money from motorists who effectively have no choice other than to run their cars.'

Society of Motor Manufacturers and Traders (SMMT)
'The cancelling of the fuel duty escalator is a very welcome move that, combined with the 1p per litre reduction, will see immediate financial pressure on motorists eased. This move will help to boost consumer confidence and economic growth, particularly benefitting the commercial vehicle and haulage sector. Hints at changes to the company car tax system are yet to be detailed, but SMMT hopes that part of the proposal includes the removal of the unjustified three percentage point penalty on diesel company cars.'

Freight Transport Association (FTA) chief economist Simon Chapman
'By cutting fuel duty by 1 penny per litre, the Chancellor has effectively saved industry £125m this year.  FTA fought hard for future fuel duty rises to be set on a budget-by-budget basis with decisions reflecting world oil prices.   His plans to cancel the fuel duty escalator while oil prices are above $75 heeds our call to stabilise the impact of volatile prices and takes future uncertainty out of a key component of our members’ costs.'

Road Haulage Association (RHA) chief executive Geoff Dunning
'The RHA’s weekly fuel survey shows that costs for a heavy goods vehicle have risen by £2,700 a year in just six weeks!  Hauliers have no choice but to recover these increases through higher haulage rates. We know that other costs are rising sharply but today’s cuts will bring some relief to hauliers AND their customers'.

British Vehicle Rental and Leasing Association (BVRLA) chief executive John Lewis
'Whether you are a haulier, a fleet manager, a commuter or a just someone trying to keep your family car on the road, this imaginative tax measure will have an instant impact on your weekly cash flow. For many it will be more important than all the other tax announcements put together.'

'However, there is nothing ‘fair’ about the government’s decision to maintain the 3% diesel surcharge within the company car tax regime. This discriminatory tax against diesel fuel is totally out-of-date and needs to be abolished.'

'The increase in AMAP to 45p is a back-door pay increase for public-sector and other grey-fleet users that will appease unions worried about job cuts and salary freezes. If the price of fuel has had such an impact on vehicle running costs, why are we not seeing a bigger rise in Advisory Fuel Rates (AFR)? The government shows how it works out the AFR rate, we now urge it to do the same for AMAP.'

'Along with the fuel duty changes, the freeze in VED for all commercial vehicles over 3.5 tonnes will be a welcome boost for CV operators.'

'The CO2 bandings for company car and benefit-in-kind tax are seeing a natural downward progression that will maintain the incentive for companies to green their fleets. However, we would hope to see a return to the three-year view on these, which is essential for restoring certainty and predictability to organisations’ fleet decisions.'

Friends of the Earth transport campaigner Richard Dyer
'Short-term measures to tackle rocketing fuel prices are merely a sticking plaster - it's our economy's long-term fossil fuel dependency that urgently needs treatment.

'In the face of a global oil crisis this Budget will increase the UK's oil addiction - and people across the UK will be forced to pay the price. If we want to protect people from future price hikes we need a fresh approach based on smarter cars that use less fuel,  better public transport and more walking and cycling for shorter journeys.'

WWF-UK transport policy officer Jean Leston
'Measures that ease the pain on consumers of fuel will be popular. However, they do nothing to wean the UK off a dangerous reliance on oil. We need a long-term strategy for an efficient, low-carbon transport system. How does the Government hope to reduce oil consumption and achieve this?'

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