This widely anticipated measure brings UK fuel duty, which has been static since 2011, down to 53 p/l, and represents an annual saving of around £100 for the average driver and about £1,500 for hauliers. However, there are concerns that the cut in fuel duty is unlikely to be sufficient to cancel out recent increases in fuel costs.

The government claims that the cut in fuel duty will be ‘the largest in cash-terms across all fuel duty rates’ and only the second time that such a cut has occurred in 20 years. Treasury analysis forecasts savings of £2.4bn for households and businesses over the next year.

However, the Petroleum Retailers Association (PRA) felt the Chancellor hadn’t gone far enough with the 5 p/l fuel duty cut. ‘The government’s fuel duty announcement is a step in the right direction, but it does not go far enough to ease the burden on motorists. Retailers are holding duty-paid stock which will be sold before the fuel duty cut comes in. To give the motorist an immediate discount at the pumps, the Chancellor would have to backdate the fuel duty cut to 1 March,’ said Gordon Balmer, Executive Director of the PRA.

The PRA pointed out that other European countries have gone further. For example, Ireland has cut fuel duty by 17 p/l, leaving petroleum retailers in Northern Ireland at a competitive disadvantage as they are unable to compete with prices across the border. Furthermore, the PRA maintains that oil price rises will see the 5 pence cut cancelled out almost immediately.

New efficiency measures support net zero target

The Chancellor also announced a reduction in VAT for people buying insulation and low-carbon technologies, like solar panels and heat pumps for their homes. 

Sunak told Parliament: ‘As energy costs rise, we know that energy efficiency will make a big difference to bills.’ The spring budget document states that such energy efficiency initiatives will also support the UK’s long-term net zero ambitions.

Sunak noted that prior to this measure only some materials qualified for a 5% VAT relief and these were subject to ‘complex rules about eligibility’ under a 2019 European Court of Justice ruling. Under the new UK measures, post-Brexit, households purchasing solar panels, heat pumps and insulation, as well as wind and water turbines, will be zero VAT-rated for the next five years. Water and wind turbines were previously outside the scope under EU rules. The 0% VAT rate applies both to materials and installation costs.

The UK government estimates a typical family will save more than £1,000 on installation and purchase of rooftop solar panels. The Treasury estimates that the government has committed to spend over £9.7bn on decarbonising buildings. The cost of expanding VAT relief for energy saving materials is estimated to be about £50mn, rising to £65mn in 2026–2027.

To support decarbonisation of non-domestic buildings, the government is also introducing targeted business rate exemptions for eligible plant and machinery used in onsite renewable generation and storage. And 100% relief for eligible low-carbon heat networks with their own rates bill. This measure will take effect from April 2022, a year earlier than planned.

Sunak also announced an additional £500mn for the Household Support Fund, on top of the £500mn provided since October 2021, to help vulnerable households with essentials including utilities.

Notably, the Chancellor ignored calls for a windfall tax on highly profitable oil and gas operations during these volatile economic and geopolitical times. Analysts estimated that a windfall tax could have raised over £3bn.