Budget 2020: fuel tax accelerator remains in hibernation

The Chancellor confirmed at Budget 2020 that the fuel price accelerator will not be used and fuel tax will not be hiked, maintaining a 10-year freeze

Despite some expectation that the government would revert to use of the fuel accelerator, Rushi Sunak confirmed that fuel tax would not be increased. The fuel accelerator has not been used since 2010 so the Budget decision will save the average car driver a cumulative £1,200, effectively £120 a year, compared to what they would have paid under the pre-2010 fuel duty escalator.

The decision is costly with Treasury estimates that the decision to freeze duty costs an estimated £500m a year over the current parliament.

‘I have heard representations that after nine years of being frozen, at a cost of £110bn to the taxpayer, we can no longer afford to freeze fuel duty,’ said Sunak.

‘I’m certainly mindful of the fiscal cost and the environmental impacts.

‘But I’m taking considerable steps in this Budget to incentivise cleaner forms of transport. And many people still rely on their cars... for another year fuel duty will remain frozen.’

This halt to the fuel increase comes at a time of falling fuel prices as an oil price war has broken out between Russia and Saudi Arabia following a failure to agree an output limit at last week’s OPEC meeting.

Nigel Morris, tax director at MHA MacIntyre Hudson, said: ‘The fuel duty freeze was the right move given the coronavirus situation. Coupled with a reduction in the price of petrol this should mean more money in people’s pockets.

'Eventually the freeze will have to go, and the revenue saved should be used to fund the transition to low emission vehicles and infrastructure, but the Chancellor was correct to refrain from taking this step now.’

Another measure in the Budget Red Book was a commitment to maintain the slight benefit in kind advantage of using an electric vehicle.

‘Extending the plug-in car grant (PICG) for another two years will help keep the price of electric vehicles down. There were also assurances that the current benefit in kind rates, which made it significantly cheaper to run an electric vehicle, will be maintained for the next three years.

‘Taken together these measures provide much needed certainty and should encourage the earlier uptake of ULEVs, particularly in fleets, and help the government meet its CO2 targets.’

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