The fuel tax campaign did better than expected when chancellor George Osborne decided not only to scrap a 4p rise but cut duty by another penny and abolished the fuel duty escalator in the budget.
Osborne is clearly concerned that the recovery has been faltering – his growth forecast for the economy has been cut from 2.1 per cent to 1.7 per cent. The chancellor also cut corporation tax by two per cent, rather than the one per cent previously planned in the hope of encouraging enterprise.
However, Osborne resisted calls for a cut in VAT on fuel and said the fuel duty escalator would return in 2015.
Osborne’s plan involves the fuel duty escalator being replaced with a “fair fuel stabiliser” that increases tax on North Sea oil production when oil prices are high.
The April 2011 inflation-only increase will be delayed to January 2012. The April 2012 increase will be delayed to August 2012. The government will increase the supplementary charge on oil and gas production to 32 per cent from 24 March 2011.
On infrastructure, the government will provide £200 million of new funding for rail projects and £100 million for local authorities to repair potholes.
Wincanton managing director Gordon Scott said: “It is clear that the current economic conditions will continue to impact us all, but in the face of rising costs and uncertain market conditions it is reassuring to see that the government has acknowledged the critical impact that rising fuel prices can have on businesses and the public alike.”
He also called on the government to allow longer trucks on UK roads. “The take up of these vehicles by the industry could result in fuel savings of £1.8 billion annually. These savings are poised to come at a crucial time, as the industry searches for a solution to mitigate against rising costs.”
The FTA’s chief economist, Simon Chapman said: “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.
“The chancellor is right to recognise that going ahead with an above inflation fuel duty policy would have been suicidal for the UK’s economy. His decision to keep VED levels unchanged shows how intently government has listened to us, for which they should be congratulated.”
Hauliers also welcomed the cut. RHA chief Geoff Dunning said: “Today’s cut will go some way to bringing relief to an industry that has quite literally been fighting for its survival. However, the inflation element has not been cancelled but simply postponed and we face two sharp increases I quick succession next year.”
And CILT chief Steve Agg said: “Transport costs represent around 15 per cent of the price of food and drink and many other consumer items, and around one third of those transport costs relate to fuel. This cut in duty will help to contain increases in transport costs and their contribution to inflation.”
The CILT also welcomed the investment in the rail network, a decision to freeze ar passenger duty and end the exemption of private jets from APD.
