What is fuel tax and how will the reduction affect prices? Business News

Rishi Sunak announced in his spring statement that fuel taxes would be reduced by 5 pence per liter over the next 12 months.

The change, which came into effect at 6 p.m. Wednesday, was prompted by rising costs of living, including a rise in the wholesale price of fuel, the Chancellor said.

However, the move appears to undermine the government’s own goals of reducing car use, and charities have warned that the reduction would “largely benefit wealthier households who tend to have larger vehicles and drive more “.

Campaigners said the ad sent a ‘damaging’ message that driving is preferable to using public transport and warned train and bus fares continue to rise while polluting petrol-powered vehicles and diesel were considered subsidized.

What is fuel tax?

Fuel duties or taxes apply to purchases of gasoline, diesel and various other fuels used for both vehicles and home heating.

The level of fuel tax depends on the type of fuel used, with a liter of petrol, diesel, biodiesel and bioethanol resulting in a fuel tax of 52.95p (57.95p before the Chancellor’s spring statement ).

Liquefied petroleum gas (LPG) has a fuel duty of 28.88p per kg, natural gas used as fuel in vehicles eg biogas has a duty of 22.57p per kg and ‘fuel oil’ burned in an oven or used for heating is taxed at 9.78p per litre.

They represent an important source of revenue for the government, raising £28bn in 2019-20, according to the Office for Budget Responsibility, which is equivalent to 3.3% of all revenue.

Last year, Mr Sunak used the Autumn Budget to announce that fuel duty would be frozen for the twelfth consecutive time, saving the average motorist £1,900, compared to ” the indexation of rights” which was in place before 2010.

Why is the government reducing fuel taxes?

The government insists the measure – described as “the biggest reduction of any fuel tax rate at once” – is intended to support households and businesses at a time when oil prices are very students.

On Wednesday, crude oil rose 4.1% to $113.75 (£86.15) a barrel, while a barrel of Brent, the international standard, rose 4.7% to 120, $94 (£91.60). Prices are up over 50% in 2022 so far.

However, it will be politically very difficult for ministers to restore the old fuel charge level, let alone increase it, as many argue that it is necessary to meet our climate targets, clean air and active travel, within a year.

What impact will lower fuel taxes have on prices?

Cutting 5p from a liter of petrol does not necessarily mean the petrol will be 5p cheaper at the pump.

Mr Sunak and Business Secretary Kwasi Kwarteng have written to major retailers, trade bodies and the supply chain to lower their prices accordingly.

“The public will rightly expect to see this historic reduction quickly reflected in the prices displayed on the forecourt,” the letter said, adding that the government wanted those “in the supply chain to pass this reduction on to consumers as soon as possible. as possible”.

AA President Edmund King said “the benefit will be lost unless the retailers pass it on”. If the reduction is fully passed on, it will probably result in a saving of around £3 for a 55-litre petrol car.

With the war in Ukraine showing no signs of ending and the price of a barrel of oil rising dramatically over the past month, refueling a tank will – many rightly say – continue to be expensive.

What was the reaction?

The Campaign for Better Transport has warned that cutting fuel taxes will do nothing to reduce our dependence on oil or help people switch to more sustainable modes of transport.

Paul Tuohy, chief executive of Campaign for Better Transport, said: “The financial impact of the current fuel tax reduction on people’s pockets will actually be minimal, while the message it sends – that driving is better than using public transport – is much more detrimental While drivers are getting help to cope with the cost of living crisis, people who depend on public transport are not getting any help cope with rising tariffs and face continued service reductions.

Since 2012, rail fares have risen at a faster rate than fuel costs, but rail passengers have faced a 3.8% rise in fares this month (4.8% in London).

Bus fares have increased at a much faster rate, by 54% over the past decade. If the cost of fuel for motorists had risen at the same rate as bus fares, it would now cost well over 200p a liter instead of an average of 167p, the organization said.

Mr Tuohy added: ‘The Department for Transport has been busy supporting bus and rail travel but the Chancellor’s announcement today cut the rug from…