Budget 2011 – Chancellor scraps fuel duty escalator, announces duty cut
Wed 23 March 2011
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The main rate of fuel duty was cut by 1p a litre and the fuel duty escalator was scrapped and replaced by a ‘fair fuel stabiliser’ in Chancellor George Osborne’s first Budget for the Coalition Government. The Chancellor also announced the establishment of a Green Investment Bank with initial funding of £3bn to support and stimulate investment by sustainable and low carbon businesses.
The fuel duty escalator which was announced in Budget 2009 has been abolished and replaced by a fair fuel stabiliser under which fuel duties will increase by the Retail Price Index (RPI) when oil prices are high. The cost of this measure will be funded by an increased levy on oil production.
However, in years when the oil price falls below a set trigger price on a sustained basis, the Government will increase fuel duty by RPI plus 1p/litre. The Government has suggested that a trigger price of $75 per barrel would be appropriate, and will set a final level and mechanism after seeking the views of oil companies and motoring groups.
The Chancellor announced that the Government's flagship Green Investment Bank (GIB) will launch in 2012, a year earlier than expected, but will not be able to borrow additional funds until 2015/16.
Mr Osborne said the bank will be backed by £1bn of government funding and an additional £2bn raised from asset sales. He added that this initial capitalisation will allow the bank to leverage an extra £15bn of private sector investment over the course of the parliament.
However, due to fears about the current level of national debt the new GIB will not be allowed to borrow and issue green bonds until 2015/16 and, even then, only if the Government's debt targets are met.
The Chancellor also announced that the UK would become the first country to impose a carbon floor price, intended to provide businesses with certainty that the price of carbon imposed through the EU emissions trading scheme would not drop below a set level. The floor price will be set at £16 per tonne in 2013 and rise to £30 a tonne by 2020. The measure is likely to increase energy bills, further strengthening the case for investment in energy efficiency measures.
The Chancellor also announced the Government’s intention to freeze Company Car Tax for cars emitting less than 95g/km from April 2013. The Government will increase Company Car Tax for all vehicles with carbon dioxide emissions between 95g/km and 219g/km by 1 percentage point from the same date.
Other transport/environment related measures announced in the Budget included:
• £200m additional investment in regional railways as a result of transport savings.
• Funding of £100m to help councils repair potholes.
• Vehicle excise duty to increase in line with inflation, and frozen for heavy goods vehicles.
The fuel duty reduction and support for business in the Budget were generally welcomed by business organisations (see related link). Environment groups were less positive. Friends of the Earth said that "short-term measures to tackle spiralling fuel prices are a sticking-plaster solution".
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