Chancellor Rishi Sunak has announced that both fuel and alcohol duty will be frozen as part of the government’s bid to strengthen public finances. Here’s what it means for you.
Please note that tax treatment depends on the specific circumstances of the individual and may be subject to change in the future.
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What a freeze in fuel duty means
Fuel duty for petrol, diesel, biodiesel and bioethanol remains at 57.95p. This is the same rate it’s been since the March 2011 Budget, despite some reports suggesting it might go up.
It’s clearly good news for drivers who won’t need to worry about finding extra pounds for the pumps. The reasoning behind the freeze is summed up by the chancellor, who says: “Right now, to keep the cost of living low, I’m not prepared to increase the cost of a tank of fuel. So the planned increase in fuel duty is cancelled”.
Data from Statista suggests that fuel duty added up to more than £27 billion in 2019-2020. But while the UK’s fuel duty stays the same, it’s still the highest in Europe.
In fact, if we take the overall cost of fuel (product price, fuel duty and VAT) we pay considerably more to fill up compared to many of our European cousins.
According to Fuels Europe, we pay more for diesel than anywhere else on the continent (£1.13 per litre). We’re followed by Malta (£1.11), Italy (£1.10) and Sweden (£1.06). In contrast, Bulgaria and Luxembourg pay the lowest price for diesel at just £0.73 per litre, including duty and VAT.
We don’t pay quite as much for petrol compared to the rest of Europe but we still make the top ten. We pay £1.05 per litre, but the Netherlands takes the top spot where the average price is £1.26 per litre.
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What does a freeze in alcohol duty mean?
It wasn’t just fuel duty that was frozen by the chancellor. Alcohol duty was frozen too, for the second year running, saving drinkers an estimated £1.7 billion. It’s also only the third time in 20 years that alcohol duty hasn’t been increased.
Of course, it’s not just a benefit for those of us who like a drink or two. The intention is to give the hospitality sector a much-needed boost.
The freeze applies to all types of alcohol including beer, cider, wine and spirits. The specific amount of duty you pay for your tipple of choice will depend on its strength. So, generally speaking, the more alcohol your drink contains, the more you’ll pay in duty.
With duty staying as is it, you’ll pay around 50p per pint in duty for a 4.6% ABV beer. When it comes to spirits, you’ll pay £11.50 in duty for a litre of 40% ABV vodka. If you’re interested to see how duty compares across your alcoholic drinks, take a look at the tax on shopping on the gov.uk website.
How does the alcohol and fuel duty freeze help me?
If you drive and like a drink (not at the same time, obviously!) the duty freeze means you won’t need to fork out any more for the fuel or alcohol you currently consume.
With easy targets like alcohol and fuel duty frozen, it means the government needs to find other sources of income.
As it stands, income tax thresholds remain the same. Based on estimates from the Office of Budget Responsibility (the government’s forecaster) it means 1.3 million people are likely to start paying tax. It also means around a million workers will become higher rate taxpayers by 2025-2026.
For more budget take-outs, check out the latest on the Universal Credit uplift and the extension of the furlough and SEISS grant schemes.
