Budget 2011: Fuel duty cut by 1p

By Alex Stevenson

George Osborne surprised MPs by announcing a cut in fuel duty which comes into force this evening.

The chancellor reversed the planned 1p hike, which would have been implemented on April 1st, in a bid to respond to concerns about petrol costing £1.30 a litre.

The New Labour government’s fuel duty escalator had planned to increase the duty by 1p every year for the next four years.

It has been scrapped and replaced with a fair fuel stabiliser, which will only increase duties when oil prices fall below a set trigger price – probably $75 per barrel.

“It is important that when shocks like the steep rise in the oil price occur, a responsible government is able to listen and respond,” Mr Osborne told the Commons in his 2011 Budget statement.

The move will be paid for by increasing the supplementary charge levied on oil and gas production from 20% to 32%, bringing in an extra £2 billion in revenue.

Mr Osborne added: “I know that by itself this will not end the pressure on family budgets, but we’ve done what we can to help – help for families, help for businesses. A government that listens and helps.”

In an additional measure, the 2011/12 inflation-only increase in fuel duty will be deferred until next year, while the 2012/13 increase will be implemented on August 1st 2012.

Shadow chancellor Ed Balls poured scorn on Mr Osborne’s changes, pointing out that they paled into comparison compared to the VAT hike to 20% implemented at the start of 2011.

“The idea that drivers around the country should be grateful for a 1p cut in fuel duty when George Osborne’s VAT rise is adding 3p to the price of petrol is laughable,” he said.

“When people fill up their cars this weekend, they should remember £1.35 of the cost is because of the Tory VAT rise.”

That did not stop motoring organisations like the AA from celebrating the news, however.

It said the move provided “a much-needed tourniquet to drivers haemorrhaging money from record pump prices”.