Spring Budget brings a welcome cut to fuel duty

Spring Budget brings a welcome cut to fuel duty

Posted by

Kevin Blackmore

March 2023

Chancellor, Jeremy Hunt, brought some cheer for fleet operators when he confirmed that the 5p cut in fuel duty, announced last year, will remain in force, thus saving drivers around £100 in fuel costs this year.

The welcome move avoids a 12p increase in fuel duty that might otherwise have come into force at the end of the month. With fleets facing record pump prices at the start of last year, fuel duty was cut by 5p per litre by the then Chancellor, Rishi Sunak, last March after being frozen at 57.95ppl since 2011.

The announcement was roundly applauded. Fleet Alliance CEO Andy Bruce said: “Fleets have been under rising cost pressures from a variety of different points, so this continued cut in fuel duty will be welcome news for many.

“It brings some much-needed relief for fleet operators in what has been a torrid year due to the energy crisis caused largely by the war in Ukraine. The price of fuel is a key component in the whole life costs equation and so this cut will go some way to helping keep cuts under some semblance of control.”

The Office for Budget Responsibility calculates that the measure will have the effect of reducing the rate of inflation by 0.75%.

Capital expenditure

The Chancellor also announced that all capital purchases of plant and machinery and IT equipment could be fully expensed by businesses against their Corporation tax bills for the next three years under a new policy.

As a result, from this April until the end of March 2026 companies can, in effect, claim 100% capital allowances for purchases of qualifying plant and machinery, boosting business investment by up to £9 billion per year due to an effective cut in Corporation Tax, according to the Chancellor.

This replaces the so-called ‘Super Deduction’ of 130% of capital expenditure introduced two years ago. Although generous on the face of it, the measure does not extend to leased assets or include cars, as many in the fleet industry had been campaigning for.

Qualifying plant and machinery includes vehicles such as vans, lorries and tractors, but not cars, and office equipment such as computers, printers, desks and chairs and warehousing equipment such as forklift trucks and pallet trucks, for example.

Under the new policy, for every pound a company invests, its Corporation Tax bill is cut by up to 25p.

“While welcome as a boost to corporate investment, in line with many in the industry we would like to have seen the policy extended to include cars rather than the allowances that we have now,” said Andy Bruce.

Greater funding for potholes

There was a further £200 million for councils to fix potholes plaguing the country’s roads, taking the national pothole fund from £500m to £700m.

While the increase was generally welcomed, the RAC pointed out that some £7bn a year was raised from car tax, while investment in roads was around £1bn.

Head of roads policy, Nicholas Lyes, said: “Another £200m is unlikely to make a big difference to the overall quality of our dilapidated local roads.

“We need to significantly increase funding for local road maintenance and improvement so councils can resurface roads properly rather than patching them up and hoping for the best.”

Andy Bruce agreed and added:” We see from our own fleet the damage caused to tyres on an annual basis by potholes, and believe our roads infrastructure requires major and substantial investment to bring it up to the standard required.”

EV infrastructure

The Chancellor disappointed much of the fleet industry by not announcing further investment in charging infrastructure for electric vehicles.

Campaigners had called for the abolishment of the so-called ‘Pavement Tax’ in which there is a VAT differential between public charging of 20% and home charging of 5%. Campaigners called this “an unfair and outdated policy hindering EV uptake among those without driveways.”

However, to the disappointment of many, there were no announcement on the subject by the Chancellor and no action was taken to strengthen the UK’s electric vehicle charging infrastructure.

Andy Bruce commented: “The harmonisation of the two rates of VAT for EV charging would have levelled the playing field and not discriminated against those who are unable to charge their vehicles at home due to a lack of off-street parking or a home charge point.”

Energy cap

With energy costs rising across the board due to the Ukrainian conflict, the Government has supported consumers to the tune of £94bn, one of the largest in Europe, by introducing an energy cap of £2,500 per household.

The Chancellor was roundly cheered when he announced this would be extended for a further three months until the end of June, by which time wholesale energy prices may well have fallen back to more acceptable levels.

“We know from talking to our customers that soaring energy costs have impacted their ability to order new vehicles and anything that can be done to mitigate these cost increases is to be warmly welcomed,” said Andy Bruce.

BIK rates

Although there was no new announcement on Benefit-in-Kind tax rates for EVs  in the Budget, the good news was actually revealed last November by the Chancellor in his Autumn Statement.

Then he said that BIK on EVs would go up from the current 2% for 2023/24 and 2024/25 by 1% to 3% in 2025/26, by a further 1% to 4% in 2067/27, and another 1% to 5% in the year 2027/28.

Rates for all other vehicles bands will be increased by 1% for 2025-26 up to a maximum appropriate percentage of 37% and will then be fixed in 2026-27 and 2027-28.

“The fact that we have clarity on BIK rates on EVs will ensure we can continue to encourage as many drivers as possible to switch to zero emission motoring, whether they are company car drivers or employees benefiting from a progressive electric car salary sacrifice scheme,” said Andy Bruce.

“This not only helps fleet planning but gives company car drivers reassurance that they will not suddenly face huge tax increases on their electric vehicles,” he added.

VED rates

Chancellor Jeremy Hunt has confirmed VED rates for cars, vans and motorcycles will increase in line with the retail price index from 1 April 2023. However, to help support the haulage sector, VED for HGVs will remain frozen for 2023-24.

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