Motoring costs for business and private individuals alike will fall as a result of today's announcement that the fuel duty escalator is to be deferred. This would have added additional duty at a rate of inflation (RPI) plus 1p per litre.
Duty is instead falling by 1p with immediate effect and a new 'fair fuel stabiliser' is being introduced which caps increases at the rate of inflation whilst oil prices are higher, and allows the previous RPI plus 1p increase at times of low oil prices.
However, there is a 3.02p per litre increase still planned on 1 January 2012, with a further increase of 1 August 2012.
Despite today's fall, the UK will continue to have the highest rates of fuel duty in the EU, being over twice that of some other member states. Whilst the current decrease is obviously positive for business, we need to remember that fuel duty has increased by just over 25% over the last 2½ years and today's reduction has a limited impact on this.
The current high oil cost per barrel, coupled with the weak value of sterling, means we can expect fuel costs to remain at an all time high, and much greater than our European neighbours, in the short to medium term.
As a country, we have seen a shift over the last decade towards smaller engine diesel cars, as consumers try to reduce their running costs. Today, the average new car sold in the UK has fallen to just under 120g CO2/KM, driven largely by the high cost of fuel. By contrast, the average new US car sold produces 255g CO2/KM engine, and across mainland Europe, we are still seeing average emissions of 145g CO2/KM.
The current reduction, if coupled with the two planned duty increases for 2012, increases the likelihood we will see a shift toward the purchase of electric vehicles over the next 5 - 10 years, as new models are introduced which meet consumers vehicle range and charging criteria. By 2020, we therefore expect nearly 20% of new car and light commercial sales will be of electric vehicles.
For the medium term, hauliers are unlikely to see any respite in fuel costs unless either sterling strengthens significantly or the wholesale barrel price reduces. Neither of these possibilities are expected in the medium term. The only likely solution for the sector would be an increase in gross vehicle weights from the current UK maximum, to reduce fuel usage per tonne of goods transported.
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