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Fuel duty rise delayed: The basics

By This is Devon  |  Posted: June 27, 2012

3p-a-litre fuel duty rise to be delayed until January 2013

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Motorists across Devon are breathing a sigh of relief today as the Government has announced it will postpone its 3p-a-litre rise in fuel duty.

The hike, which was due to come into force in August, will now be delayed until January 2013.

The Chancellor George Osborne said the freeze, which follows a campaign by road users' groups, will benefit families and businesses.

What is fuel duty?

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Fuel duty is an excise duty administered by HM Customs and Excise. Revenues are collected from manufacturers and importers.

The price we pay at the petrol pump reflects the price charged by the manufacturer or importer to the distributor or retailer, which is passed on to us. None of the price paid by the motorist at the pump goes directly to the state.

The rates of road fuel duties are adjusted annually by the Chancellor of the Exchequer as part of the Budget. Changes come into force that day under the Provisional Collection of Taxes Act 1968.

What does the delay mean for me?

The AA said deferring the 3.02p-a-litre increase will spare a two-car family from a £6.41-a-month leap in petrol costs.

Mr Osborne yesterday said fuel duty will now be 10p a litre lower than under the plans inherited from Labour.

Why all the hype?

The price of road fuel is an explosively divisive issue. Organisations such as the RAC Foundation and the Freight Transport Association have slammed the Government for putting extra strain on drivers by hiking prices.

Mr Osborne acknowledged in his March 2011 Budget that the price of petrol "has become a huge burden on families" and that price rises have hit businesses hard.

Campaign groups such as FairFuelUK, which fight for lower petrol and diesel prices, have attracted the signatures of almost 301,500 people.

Conversely, environmental groups call for higher duties in order to discourage "unnecessary" vehicle use.

How has the delay been received?

A number of newspapers are today mocking Mr Osborne for his fuel duty U-turn, claiming it will damage the government's fiscal credibility.

However, many agree it was the right thing to do, as it will ease the strain on families and businesses.

How did fuel duty first come about?

Petrol duty was first introduced in 1909, under the Finance Act 1908. Abolished under the Finance Act 1919, it was reintroduced in 1928.

The foundations for the situation we face today were laid in 1993 by the then Chancellor Norman Lamont's Budget, in which he increased duties by 10 per cent and introduced the "fuel duty escalator", under which they would rise annually by 3 per cent above inflation.

The fuel duty escalator climbed in the years that followed - to 5 per cent above inflation per year under Chancellor Kenneth Clarke, and 6 per cent under Chancellor Gordon Brown.

A freeze on duty and reductions in duty for ultra-low sulphur petrol and conventional unleaded petrol of 2p per litre were implemented in the 2001 Budget amid protests led by Farmers For Action. But by October 2003 the Government felt able to begin increasing fuel duties in line with inflation once more.

The two pence per litre increase was introduced on September 1 2009, with plans for a one pence per litre increase in real terms each year from 2010 to 2013.

Labour’s Budget revealed that rises in fuel duty for 2010 would be staged, with a one penny per litre increase on April 1 and October 1, and a subsequent increase of 0.76 per litre on January 1 2011.

In the 2011 Budget fuel duty was cut by 1p per litre, effective from March 23. The inflation rise in duty planned for April was postponed until January 2012, and the April 2012 inflation rise delayed until August 2012.

The Chancellor also announced that the fuel duty escalator, which would have added an extra penny to fuel on top of inflation, would be cancelled for the duration of this Parliament.

Mr Osborne instead established a 'Fair Fuel Stabiliser', and confirmed that above inflation rises would return only if the oil price fell below £45 on a sustained basis.

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  • nick113  |  June 27 2012, 4:06PM

    "Motorists across Devon are breathing a sigh of relief....." Well I'm a motorist and I am worried by this move. The most important thing the chancellor has to do is to balance the books, and to fail to implement his plan leaves debt £500 million higher than it would have been.