Fuel duty u-turn confirmed

24 March 2010

The planned 3p increase in fuel duty will be phased in over the next 12 months, Alistair Darling announced in his 2010 Budget.

The chancellor says that instead of the proposed 3p increase coming into effect on 1 April, the rise will be phased in over the next financial year.

The first 1p increase will be added in April, followed by another 1p addition in October of this year and the final increase in January 2011.

Darling hopes that, by this time, consumers will be more able to deal with the price rises with inflation forecast at 2% compared to its current level of 3%. “The staging will ease the pressures,” he said in his speech.

But Kieren Puffett, editor of motoring expert Parker’s, warns the staged increases are coming at a time when drivers are already being badly hit.

“The phased increases to take place in April and October this year and then January 2011 are designed to lighten the impact, but petrol and diesel are already costing more than £1.20 a litre in some parts of the country and only look like they are going to go up further even without the government’s further tax.”

Edmund King, president of the AA, welcomes the initial move - but says drivers will still be hit: "Staging the fuel duty increase will avoid a big hit in an 'April fuel's day' fiasco.

"However, a 1p increase will still hit motorists hard with record prices at the pumps. Perhaps the thought of 32 million fuming drivers and voters influenced government thinking?"

Louise Somerset, tax director at RBC Wealth Management, calls green taxes “very much the 'in thing'”.

She adds: “It is interesting that the chancellor has decided to stage fuel duty - possibly something to do with the recent hike in prices at the pumps.”

The average petrol price is currently 117.3p a litre, according to petrolprices.com, although the AA’s March Fuel Price Report shows that most supermarkets are managing to keep prices at a below average 113.5p.

However, average UK petrol prices have shot up by 4p in one month alone. The AA also warns that petrol prices could reach a record average level of £1.20 a litre.

"Drivers' relief at the chancellor not raising fuel duty by 3p on 1 April will be short-lived if prices continue to rise. The immediate rise of 1p per litre will cost 50p a tank more to fill up," says King.

He adds: "Had the [3p] increase gone ahead, it would have added £1.50 to the typical cost of refilling a petrol or diesel car, or £37.50 a year.”

AA calculations reveal that the additional £1.50 cost of filling up a car would have been four times the average increase in council tax for this coming year.

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