2011 Budget Special
23rd March 2011
Drivers’ wallets have taken a hammering in the last 12 months with rising petrol costs and soaring insurance rates. The latest fuel price report from the AA estimates that the average price of unleaded petrol has increased by almost 15% since March 2010, with a litre now costing around 133p. Increases in the price of diesel are even greater – up 19% over the last year to 140p a litre. These price increases have been driven by increased oil prices (up 35% in the last 5 months), increased fuel duty and the recent increase in VAT from 17.5% to 20%.
This increase in fuel prices is dwarfed by the rampant inflation we have seen in car insurance policy prices. Tiger.co.uk’s own car insurance price monitor (“Tiger Watch”) indicates that the average car insurance policy price in March 2011 will be about 36% higher than it would have been a year ago.
This “double whammy” inflation hitting the UK’s drivers has not just hit household budgets. Businesses using the UK road network, either directly or indirectly, to deliver goods and services have also been hit hard.
Against this backdrop drivers and businesses were looking to today’s Budget to offer some relief to UK road users. With over 63% of the current pump price of unleaded petrol going back to the country’s coffers in the form of fuel duty (accounting for about three-quarters of this revenue) and VAT, this is an area over which the Chancellor can exert control. With any decrease in levels of VAT being deemed illegal under current European Union rules, fuel duty is the only real lever available to him for reducing petrol prices.
The Chancellor’s announcement that the government is to scrap plans to raise fuel duty by 4p a litre – an increase that was announced by the previous government and due to be implemented next month – and to delay the planned 2012 increase until the summer of that year are to be welcomed. His subsequent announcement that duty would also be cut by 1p with effect from 6pm this evening provides further much needed relief for Britain’s hard pressed drivers.
These moves are estimated to be costing the Treasury some £600 million a year in lost revenues and are perhaps more generous than could have been expected, particularly at a time when we are seeing drastic belt-tightening in pretty much every area of public finance.
In practical terms the effect of not introducing this increase and reducing duty by a further 1p will be to “save” motorists about £3 on a tank of petrol...every little helps, George!
Also to be welcomed are additional measures for motorists including the scrapping of the current Fuel Duty Escalator (the mechanism by which 1p is added to fuel duty on top of an inflationary increase each year) until 2015 and its replacement with a Fair Fuel Stabiliser that allows for the cancellation of standard fuel duty increases when oil prices remain high; the limitation of vehicle excise duty increases to the rate of inflation (and a price freeze for HGVs); and an additional government pledge of £100 million to help repair potholes in England.
Car insurance costs are not (with the exception of the increase in Insurance Premium Tax from 5% to 6% that was effected from January 2011) controllable within the Chancellor’s remit. However we have seen from our “Tiger Watch” monitor that insurance prices have been relatively static over the first three months of 2011 and that the brakes have been applied, at least temporarily, to the massive increases that we saw across the last 9 months of 2010. Although prices are forecast to rise across 2011, the 30%+ levels of increase that we witnessed last year are less likely to be seen.
Remember to help yourself when it comes to your own motoring budget and make sure that you shop around when your next car insurance renewal lands on your doormat or in your inbox. Use Tiger.co.uk to compare car insurance prices across more than 80 brands and we will always try and get you a great quote!