Will the fuel duty freeze continue in the Budget 2020?

What would fuel duty be now if it had not been frozen?
Had fuel duty continued to rise with inflation (RPI) plus the addition of VAT, it is likely fuel duty in 2019 might have been around 88p - over 27% higher than the frozen duty at 69.54p (57.95p plus VAT).

What would have been the additional cost in 2019 for a motorist without the fuel duty freeze?
£126 for an MGV8 enthusiast covering 4,000 miles pa at say 28mpg. So a useful saving over the lengthy period of the duty freeze.
£220 for a driver of a modern car covering 10,000 miles pa at say 40mpg. So a considerable saving over the lengthy period of the duty freeze.

See our chart on the effect of RPI if fuel duty had not been frozen. Chart

See our preview of the Budget Statement 2020 due on Wednesday 11th March 2010.
Budget 2020 preview








Updated: 200123
Posted: 131200


Freeze on fuel duty of motor fuels
Fuel duty has been frozen at 57.95ppl since 2010-11. The rate of duty depends on the type of fuel. VAT is applied after fuel duty, so, for example, the pump price of a litre of petrol currently reflects the pre-tax price plus 57.95p for fuel duty plus 20 per cent VAT on the pre-tax price and a further 11.59p for VAT at 20 per cent on fuel duty.

Political factor for a Government in setting fuel duty
A study by the London School of Economics (LSE) found "that governments tend to increase fuel tax rates when they enjoy a substantial electoral lead over their rivals. However, as this lead shrinks and political competition increases, governments tend not to increase rates". With the present Conservative government having a comfortable majority the LSE finding raises some concerns over the continuation of the fuel duty freeze but equally the Chancellor will be very aware that a rise in fuel duty would have an inflationary impact on the economy for consumers, commerce and industry.

The next 12 months in 2020 will be an uncertain period until the terms of the deal reached with the EU is determined, or at least clarified to some extent. Some pundits feel that faced with these uncertainties the likelihood is the fuel duty freeze will continue for 2020-21.

Fuel duty is a significant source of Government income
The Office Office of Budget Responsibility (OBR) says "fuel duties are levied on purchases of petrol, diesel and a variety of other fuels. They represent a significant source of revenue for government. A recent forecast expects fuel duty to raise £28.4 billion in 2019-20. That would represent 3.5 per cent of all receipts and is equivalent to £1,000 per household and 1.3 per cent of national income. OBR

Will the fuel duty freeze continue?
In August 2019 there was some speculation that the Prime

Minister was considering cutting fuel duty by a further 2p per litre (ppl) ahead of leaving the EU. The Sunday Times said Boris Johnson’s team had been working on an emergency budget for October, which would include a fuel duty cut, costing the Treasury some £1.5 billion in lost tax revenue. It also mentioned they had war-gamed holding an election on 17th October. As we know that is what happened and the result was a comfortable majority. So the nature of Westminster politics has changed from a period when any progress with Brexit or alternative Government business was driven into serious confusion and muddle as the Government struggled with no working majority to one where the election result was a comfortable majority which should provide an opportunity for progress with many matters, not least leaving the EU on 31st January 2020.

Chancellors have proudly announced a continuation of the fuel duty freeze for so long now that any increase would be very political and it’s likely that Boris Johnson would not want to enable his critics to claim an increase was a consequence of Brexit, or risk a British version of the Gilets Jaune protests. More tax will have to be raised but tax increases will be made in areas that are less likely to produce adverse headlines – for example by not lifting the threshold for higher rate income tax. Possibly there could be a swipe at diesels in some way. Will they hold their nerve and impose a tax on the tech giants? Trump does not like that idea at all, so it’s likely that might be postponed to become a bargaining chip in a UK/USA trade deal.

As more electric cars come on the road, there will be a loss of fuel duty and road tax, and something will have to replace that, perhaps tolls on motorways. People rightly have concerns about smart motorways, perhaps the approach might be "Widening motorways and leaving them with hard shoulders is expensive, so if you want that then you will have to accept tolls".
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