Budget 2023 freezes fuel duty for 13th successive year, extends 5p/litre reduction
Wed 15 March 2023
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In the most significant announcement relating to road transport in the Spring 2023 Budget, the Chancellor announced that the 'temporary' 5p fuel duty cut announced last Spring will be extended until March 2024 while the planned inflationary increase was cancelled for 2023-4. The Government said that it will set out further action to "ensure energy security in the UK and meet our net zero commitments" later this month.
The Budget document says that petrol and diesel prices continue to be volatile given the ongoing conflict in Ukraine and that inflation remains high. The Government's commitment to maintain the rates of fuel duty at the current levels for an additional 12 months through extending the temporary 5p fuel duty cut and cancelling the planned increase in line with inflation for 2023-24.
The Government says that this support has already been available for longer than in many countries and represents £10 billion of support over two years, worth around £200 for the average car driver. The Government says it will continue to keep fuel duty rates in the long term "under review, including carefully considering support for motorists, fiscal implications and use of fuels".
The Budget document said further measures relating to the country's net zero commitments would be announced on 'Green Day' (subsequently re-branded 'Energy Security Day') widely expected to take place on Thursday March 30.
Elsewhere in the Budget the Government announced a commitment to spend £20 billion for early deployment of Carbon Capture, Usage and Storage (CCUS) and to support the introduction of Small Modular Reactors through the formation of a new enterprise, Great British Nuclear. It also announced that nuclear energy will also be included in the green taxonomy, subject to consultation, to encourage private investment.
In a paper published before the Spring Budget, the Social Market Foundation reported that the prior twelve years of fuel duty freezes will have cost the Treasury a total of more than £100 billion during the next fiscal year, according to the Office for Budget Responsiblity (OBR).
The pump price of unleaded petrol peaked at just over £1.91/litre in July 2022 and has fallen since, as has diesel. In January 2023, the average pump price for petrol had fallen more than 25% to below £1.50/litre.
A paper from the New Economics Foundation, published after the Budget pointed out that the net result of the continuing freeze is likely to be an increase in consumption of fossil fuel and, consequently, of carbon emissions.
NEF's analysis found that the likely increase in household fuel consumption stemming from the duty decisions over the next year will result in 3.4 to 3.9m additional tonnes of carbon dioxide being emitted; the equivalent of adding between 2 and 2.3m more cars to UK roads for a year.
NEF's paper points out that the reduction in the cost of driving ICE vehicles makes alternatives to private transport less attractive as well as reducing the benefits of switching to an electric car, particularly as electricity prices are close to historic highs.
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