What is fuel duty and how will the 5p cut reduce prices at the pumps?

Rishi Sunak announced a cut in fuel duty during his spring statement Credit: PA

As petrol and diesel prices reach an all time high, the 5p fuel duty cut announced by chancellor Rishi Sunak in his spring statement will come as a small, but welcome relief to many low and middle income families.

While delivering his speech in the House of Commons, Mr Sunak said it's "the biggest cut to all fuel duty rates ever", which he claims will save motorists £5 billion.

It came into force in March 2022 and will remain in place until March next year. However, ITV News Consumer Editor Chris Choi said it could take up to 10 days for the price cuts to filter through to drivers.

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  • What is fuel duty?

Fuel duty is the tax included in the price paid for petrol and diesel when you fill up at the pump. The standard 20% VAT rate is then added on top.

Duty on petrol and diesel had been frozen at 57.95p since March 2011. But a cut of 5p announced by the chancellor today, sets the duty at a new price of 52.95p.

  • Why is the cost of fuel so high at the moment?

The price of petrol currently sits at an all time high. On Tuesday, the average cost of a litre of petrol at UK forecourts was 167.3p, while diesel was 179.7p, figures from data firm Experian Catalist show.

This is an increase of 18p per litre for petrol and 27p for diesel over the past month. It means on average, a tank of fuel is costing motorists around £90.

The latest figures from BEIS show how prices have continued to rise in recent weeks Credit: BEIS

One of the things which affects the price of fuel is the supply and demand for crude oil, and its price globally. In general terms, the higher the price of crude oil, the higher price motorists pay at the pump.

This graph from the RAC shows how the price of crude oil has shot up since the start of the year.

RAC graph shows how the price of crude oil has increased since the start of 2022. Credit: RAC

Oil prices surged immediately after Russia’s invasion of Ukraine due to supply fears, leading to a rise in wholesale costs.

After the invasion, on February 24, the price of crude oil jumped by 5.6% to $102.30 (£77.60) per barrel, hitting its highest point since 2014.

Prices were already increasing as global economies recover from the coronavirus pandemic.

As of March 18, the cost was $113.88 (£86.39)

Fuel prices have been rising in recent weeks Credit: PA

  • How much difference will a 5p cut in fuel duty make?

A study by the RAC shows drivers are increasingly worried about the impact of high fuel prices.

Of 2,000 drivers asked, 94% said they are dependent on their vehicles, with 83% saying they wanted to see Mr Sunak step in to help reduce the record high prices.

It has led to some motorists cutting spending on other things to afford to pay for essential fuel.

According to calculations from the RAC, a 5p cut takes fuel duty prices from 57.95p per litre, down to 52.95p. Based on Tuesday's figures, this could drop average prices to 162.3p per litre of petrol and 173.7p for diesel. This would equate to a saving of around £3 on the cost of filling a 55-litre family petrol car.

  • What have experts said?

Some environmental campaign groups have criticised the chancellor's actions. Dr Doug Parr, policy director at Greenpeace UK, said Mr Sunak "should only cut fuel duty if he can make an equivalent cut to the costs of public transport".

Meanwhile, RAC fuel spokesperson Simon Williams is concerned retailers also need to play their part in order to make a real difference for motorists.

He explained: "The biggest retailers are once again letting drivers down by not charging lower prices while they can.

"Instead, they appear to be hedging their bets to protect themselves from future increased wholesale costs.

"This is why we fear a fuel duty cut by the chancellor in the spring statement could be swallowed up by retailers to the detriment of hard-pressed drivers.

"A VAT cut would be a far more flexible and powerful way of easing the pain for drivers."