Fuel Duty freeze is welcome, but what about EV owners?

Chancellor missed opportunity to review VAT on EV charging, says the AA's Jack Cousens

The AA welcomes the chancellor’s decision not to increase fuel duty for a further 12 months, even if the benefit has halved from £100 in 2022 to £50 now.

Higher motoring costs, whether fuel, maintenance or insurance, are generating substantially higher VAT returns for the Treasury. Petrol now at 145p a litre, compared to the pre-pandemic average of 123.2p (2017-2019), now includes 3.7p more in VAT. From a typical 55-litre fuel tank, the VAT haul is up by more than £2.

Petrol at the current 145p and diesel at 153.5p a litre are prices that were unheard of before covid and the Ukraine war. Were it not for the 5p fuel duty cut (6p with VAT) in March 2022, the burden on workers and families who need their cars to go about their daily lives would be even worse.

Taxed at more than 50%, road fuel costs are already a major financial penalty for having to commute by road because trains have become unreliable, buses in many rural areas non-existent and soaring housing costs often force people to live further away from where they work.

Higher fuel costs already benefit the Treasury with a bigger VAT return. Between 2017 and 2019, petrol averaged 123.2p and returned 20.5p a litre in VAT. At 145p a litre, it returns 24.2p a litre. With every tank, typically holding 55 litres, the chancellor is already getting £2 extra with every fill-up.

Road fuel prices are currently at levels unheard of before the pandemic – even with the 5p fuel duty cut (6p with VAT) in March 2022. More people have been forced into their cars by unreliable trains, reduced bus services and higher housing costs sending them further away to cheaper areas. Councils are ramping up parking costs, even sometimes taxing city workers with a Workplace Parking Levy, to fill holes in their coffers.

Even with the intense pressure to balance the UK’s books, now is not the time to rev up motoring costs for workers and families who rely on their cars to go about their daily lives – and stoke inflation. The AA therefore welcomes the 12 month freeze in fuel duty, despite the benefit felt being halved from its introduction.

However, The AA is disappointed that the chancellor did not review Insurance Premium Tax (IPT). This levy on responsible motoring, has added such a financial burden on car ownership, especially younger drivers, that it’s estimated that a million people drive without insurance. It’s not only illegal but it adds unnecessary costs and worry to every law-abiding driver.

Similarly, not equalising the VAT on public charging of EVs with domestic charging is a missed opportunity to encourage more car owners to switch to an EV and contribute towards the UK goal of net zero.

Jack Cousens is the AA’s head of roads policy