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Budget 2016: fuel duty frozen for sixth year running, £230m to improve North England roads, Severn Bridge Toll halved

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Author: | Updated: 16 Mar 2016 10:25

The fuel duty freeze has survived another Budget after Chancellor of the Exchequer George Osborne resisted the temptation to cut the nation’s deficit by exploiting motorists.

This means that fuel duty has been unchanged since 2011, which would save the average motorist £75 a year, Osborne told the House of Commons today.

Despite numerous scheduled fuel duty increases over the years, each hike was delayed or scrapped before it could take effect. This marks the longest fuel duty freeze in more than 40 years.

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Families paid the cost when oil prices rocketed; they shouldn’t be penalised when oil prices fall. George Osborne - Chancellor of the Exchequer

With oil prices so low and pump prices dipping below the £1 in much of the UK, Osborne believes that motorists had bore the brunt of elevated oil prices in recent years and that they should enjoy the benefits now they have settled.

“Families paid the cost when oil prices rocketed; they shouldn’t be penalised when oil prices fall,” he told the House.

He branded the measure as “the tax boost that keeps Britain on the move”.

Currently, fuel duty makes up just over half of what motorists pay for a litre of petrol or diesel (57.95p), with the rest made up from VAT (20%) and company profit.

How petrol prices are currently made up:

Petrol price breakdown

Other measures

Osborne also confirmed that £230 million would be spent on improving roads in the North of England including upgrades to the M62 (Liverpool to Hull via Manchester and Leeds).

The Severn Bridge Toll would be halved to £3.30 for cars, £6.60 for vehicles with 9-16 seats, and £9.90 for any vehicles with 18 seats or more.

From April 2018, the main rate threshold for capital allowances on business cars will be reduced from 130g/km to 110g/km CO2 and the First Year Allowance threshold to 50g/km. The 100% First Year Capital Allowance for businesses purchasing low emission cars will be extended for a further three years until April 2021.

Insurance Premium Tax (IPT) will be raised by 0.5%, marking the second increase in six months, which could drive up the cost of insuring your car by a mere £2 a year, according to HM Treasury calculations.

Salary Sacrifice wasn’t mentioned during the Budget announcement itself, but the wider Budget document states that the Government is considering a limit to the range of benefits that attract income tax and NICs (National Insurance Contribution) advantages when they are provided as part of salary sacrifice schemes.

Corporation Tax - which was 28% in 2011 - will also drop to 17% by April 2020, making it the lower than in any other country in the G20.

Reaction

A fuel duty reduction is what the Freight Transport Association (FTA) was really hoping for. The haulage trade body tweeted: “Not the 3p per litre cut we wanted but positive for logistics industry.”

This would have been the ideal opportunity for the Chancellor to freeze fuel duty for the rest of this Parliament and improve his already good record on fuel duty David Bizley, RAC Chief Engineer

David Bizley, the RAC’s Chief Engineer, was disappointed that Mr Osborne didn’t make a longer-term commitment to freeze duty beyond next year’s Budget, despite the Government’s own evidence that lower fuel prices benefit the economy.

“This would have been the ideal opportunity for the Chancellor to freeze fuel duty for the life of this Parliament and improve his already good record on fuel duty,” he said.

AA President Edmund King seemed reasonably satisfied with what Osborne had to say…

Ashley Barnett, Principal Consultant at Lex Autolease, was also delighted at the Chancellor’s decision to prolong the tax duty freeze but wondered what the Government had planned for salary sacrifice schemes.

“Salary sacrifice car schemes can form an integral part of a business’s employee benefits package and can work wonders for talent attraction and retention levels,” he added.

“It would be helpful to see clarity from the Government - both about the timeframes involved and the specific schemes allowed. We would like the Government to provide clear guidelines which will enable businesses to plan for any changes they may need to implement.”

Cancelling or limiting salary sacrifice arrangements for cars as part of an employee package will hit the lowest paid. British Vehicle Rental and Leasing Association (BVRLA)

The British Vehicle Rental and Leasing Association (BVRLA) also warned that any changes would impact on the estimated £4,500 that HMRC receives in tax revenue per year from each salary sacrifice car.

It said: “As well as being tax-positive for the Treasury, the evidence from our members demonstrates that the majority of recipients of salary sacrifice car schemes are those paying basic rate of tax (i.e. those employees paid less than £31,785).

“Cancelling or limiting salary sacrifice arrangements for cars as part of an employee package will therefore hit the lowest paid, as well as reducing their opportunity to drive a brand new car rather than an older vehicle, which is unlikely to conform to the same safety and emissions standards.

“We encourage the Government to recognise the value of salary sacrifice schemes as a net contributor of tax, as well their benefits in driving important behavioural changes in vehicle emissions and safety standards.”

On the subject of business car capital allowances, Eddie Amaro, also a Lex Autolease Principal Consultant, added: “The lowering of the CO2 threshold from 160 g/km to 130g/km, which came into effect in April 2013, meant many customers have used 130g/km as a benchmark for their fleet decision making for the last three years.

“The question now is whether the newly-announced, lower threshold of 110g/km replaces 130g/km as the crucial figure around which fleet strategies may be designed.”

“If the new regime came into effect tomorrow, a significant proportion of fleet vehicles between 110 g/km and 130 g/km would be reclassified overnight,” she concluded.

Meanwhile, the BVRLA also challenged the Chancellor's decision not to make the 100% First Year Capital Allowance available to companies that lease their cars.

“This unfairly discriminates against SMEs who rely on lease arrangements to access new low-emission cars, and instead favours cash-rich businesses who can afford to purchase cars outright,” it said.

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