Fuel Duty Frozen—What does it mean for consumers?

As drivers, the costs surrounding the fuel we put into our cars isn't something that’s given much thought. When our tank is nearly empty, we automatically go out and fill it up. We always assume that the cost of fuel is only a small percentage of total taxes. However, if we actually paused and looked into exactly what creates fuel duty increases and decreases we'd understand more about the money that is made from it, and how it impacts on us.

According to Petrol Prices there are three main factors that impact on changes: new technology, global events, and finally, market forces. One of the most recent reasons fuel duty has been such a heated subject is the financial crisis of the last few years. When Gordon Brown took office, taxes and VAT for fuel was at approximately 81.5%. And yet, under George Osborne, the percentage is now at 57%.

So what is fuel duty? As consumers we hear the phrase all the time but are never exactly clear on what it really means. Fuel duty, quite simply, is what is paid to the government when you purchase your fuel. It was in 1993, under a Conservative government, that our government started making money off of fuel prices in the form of the Fuel Price 'Escalator'. Initially, not only was it a means to generate more income, but it was also seen as a way of deterring people from using their vehicles unnecessarily. At the time, fuel prices rose up by three pence, and the tax was a total cost of 72.8%.

In the grand scheme of things, fuel duty accounts for £27 billion of our government's income, which is only a fraction under what council tax generates at £27.8 billion. Therefore, when you see the figures in black and white, it soon becomes clear that fuel duty is something consumers should pay more attention to, especially since the Budget Deficit was revealed in March. During the unveiling of these plans, it was announced that fuel duty would be frozen for yet another year, which was welcome news to many who had feared that an early return to the aforementioned Fuel Price 'Escalator' was on the agenda.

As a result of this news, many have asked what benefits can be gleaned from this continued freeze, an issue that Motors.co.uk addressed in one of their latest articles. These vote pleasing measures that the Chancellor has taken are apparently set to save families up to £10 every time they fill up a tank of fuel, a figure that is a lot of money to many families across the UK currently. What is more, this move by the government is not only welcomed by consumers, but is also historic as it is the longest fuel duty freeze in 20 years. Although this is a cause for a sigh of relief for struggling consumers, it is important to highlight, like The Guardian did, that the reduction in fuel costs isn't due to decreased taxes but rather a reduction in the cost of oil; a market force change if we use the technical terms introduced earlier.

Families and businesses could stand to make significant savings over the coming months due to this announcement, however, it does leave many critics wondering how the government will make up the shortfall that has come about due to petrol consumption falling. As fuel duty is an important part of government income, it will be interesting to see how this effects the Government's forecast revenue.