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Budget 2011: What does it mean for motorists?

Fuel duty cut by 1p per litre from 6pm tonight

Petrol pump

The 1p cut in fuel duty headlines the changes announced in the 2011 Budget

George Osborne’s 2011 Budget included many changes that will affect British motorists, most notably the 1p cut in fuel duty which comes into force from 6pm tonight.

Commenting on the Budget, Which? motoring editor Richard Headland, said: ‘The government has given drivers some blessed relief from today’s high fuel prices – and more importantly, has removed the 5p-a-litre hike that was due in April. That’s good news for those who rely on their cars every day, and also for the price of consumer goods that are transported by road. Drivers may be less happy about the rise in car tax though, which will erode some of the benefits of the fuel duty cut.’

Here is our summary of what the Budget 2011 really means to drivers.

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1. Fuel prices

Fuel duty down by 1p

Arguably, the biggest talking point of the entire Budget 2011 is the cut in fuel duty by 1p per litre to help combat the ever-rising cost at the pump in recent months.

Motorists were hit two-fold in January by the 2.5% increase in VAT and the 0.76p per litre rise in fuel duty. And since, surging oil prices have pushed the cost of filling up to record highs, with petrol rising to an average of 133p per litre, and diesel rushing to 140p.

As a result, the coalition government has axed the 1p per litre increase in fuel duty planned for April (which, after adding the inflationary rise and VAT, would have bumped up pump prices by almost 5p), and instead cut fuel duty by 1p.

Fuel Duty Escalator scrapped

Further increases in fuel duty have also been scrapped with Osborne cancelling the Fuel Duty Escalator.

The escalator, which was initially introduced by the previous government, added 1p on top of inflation every year. However, the chancellor confirmed it would be scrapped this year, and for the rest of this Parliament.

The inflationary rise in duty planned for April will also be delayed until 2012, and next year’s inflationary rise will be carried over to the following summer, according to Osborne.

Join the Which? Conversation about whether or not the Budget 2011 is good news for drivers

Oil barrel

Fair Fuel Stabiliser has been introduced to offset the high price of oil

Fair Fuel Stabiliser introduced

Also given the go-ahead in the Budget 2011 was the Fair Fuel Stabiliser. A major talking point of the emergency Budget in June 2010 and questioned heavily ever since, the chancellor confirmed the stabiliser would come into effect from tomorrow (Thursday 24 March).

Osborne said: ‘From tomorrow, the supplementary charge levied on oil and gas production will increase from 20% to 32%.

‘If the oil price sustains a fall below $75 – and we will consult on the precise figure – we will introduce the escalator and reduce the new oil tax in proportion.’

Simply put, there will be no fuel duty escalator when oil prices are high, and at the other end of the spectrum there will be no additional oil tax when oil prices are low.

However, it doesn’t equate to what the public might expect from a ‘fuel duty stabiliser’, as originally tabled by the Tories in 2008. That proposed that pump prices would be benchmarked and only allowed to move 5p per litre in either direction, in response to the changing price of oil. 

Under the Fair Fuel Stabiliser outlined in today’s Budget, the price of petrol and diesel will continue to rise at the pump in response to rising oil prices – this won’t be offset by a flexible duty rate to keep prices in check. The Budget’s sweetener for motorists is only the deferral of the inflationary rise and the 1p cut in duty.

Rural Fuel Duty Rebate pilot scheme requested

It also emerged that the government has requested a rural fuel duty rebate pilot scheme to the European Commission.

The scheme aims to offer a 5p per litre duty discount on fuel in the most rural areas including the Northern Isles, the Inner and Outer Hebrides and the Isles of Scilly.

No details have yet been given on when this might take effect.

Read our guide to finding the cheapest fuel

Potholes in the road

An additional £100m has been added to the pothole fund

2. Road standards

Additional £100m added to pothole fund

An extra £100m has been added to the pothole fund, doubling the current pot promised by the Department for Transport (DfT) last month.

However, Warranty Direct, which runs Potholes.co.uk, says the injection of more cash may not solve the roads problem entirely.

“Motorists will appreciate this extra support as it will mean fewe cars get damaged,” said Warranty Direct managing director Duncan McClure Fisher.

“It’s not a solution to the problem – piecemeal cash injections won’t do the trick – but at least it’s a step in the right direction.”

3. Company car tax

Company car tax frozen for low emissions cars

Also confirmed in the Budget 2011 document is the freezing of company car tax for cars emitting less than 95g/km of CO2 from April 2013.

Company car tax for vehicles emitting over 95g/km and up to 219g/km will increase by 1% point from the same date, it was also confirmed.

Currently, cars emitting between 99g/km and 120g/km fall into the lowest bracket and are taxed 10% on their buying price. 

However, there was no mention of scrapping the 3% tax penalty on diesel cars – a measure that was called for by the Society of Motor Manufacturers and Traders. However, precise details of the changes have yet to be finalised.

Read our guide to company car tax bands

Toyota Prius

Low emissions cars will be exempt from road tax inflation

4. Vehicle Excise Duty

No car tax rise for low-emissions models

Annual car tax will rise in line with inflation from April 01 2011 for all cars with emissions higher than 120g/km CO2.

As a result, cars emitting between 121g/km and 150g/km CO2 (bands D-F) will increase by £5, and those emitting between 151g/km and 200g/km (bands G-J) will rise by £10.

Cars in road tax band K (CO2 emissions between 201g/km and 225g/km) will be charged an additional £15, and the top two tax bands will increase by £20 and £25 respectively.

There are no plans to scrap the first-year rate of ‘showroom tax’ for new cars.

Read our guide to Eco cars or read our guide to buying car tax online

 

Get more from Which? Car

Get more from Which? Car

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