Budget 2012: fuel tax to rise in August

Fuel duty will not increase as a result of today's Budget announcement, but duty will still increase in plans set out in the Chancellor's 2011 Autumn Statement.

The plans announced last year saw a fuel duty increase originally planned for 1 January 2012 deferred to 1 August 2012. George Osborne's announcement means this still stands, meaning fuel duty will increase by 3.02 pence per litre.

Above inflationary increases to fuel duty will only return if oil drops below £45 per barrel on a sustained basis.

Vehicle excise duty will increase only by the rate of inflation. VED is frozen for road hauliers.

Company car tax bands will be changed to promote the use of more environmentally-friendly vehicles. The government will extend the 100 per cent first year capital allowance for low emission business cars, reduce the CO2 threshold for the main capital allowance rates and increase the percentage list price of company cars subject to tax.

However, it was also announced that ultra-low emission vehicles will no longer be exempt from company car tax from 2015. Owners of electric company cars will have to pay 13 per cent of the vehicle's value in tax, rising to 15 per cent in 2016/17.

In addition, the company car tax rate for vehicles emitting more than 75g/km of CO2 will increase by one per cent in 2014/15, and two per cent in 2015/16 and 2016/17. The maximum company car tax rate will also increase from 35 per cent to 37 per cent in 2015/16.

The treasury says the 3 per cent diesel penalty will be removed from company car tax from 2016/17.

Mr Osborne said he wants to increase the value of UK exports to £1 trillion this decade, and help will be made available to smaller firms. No commitment was announced for additional investment in the car industry, although he said: "This Government also supports research and development here in Britain instead of abroad".

The AA's president, Edmund King slammed the fuel duty announcement. He said: "At a time of record prices at the pumps the August increase in duty is a budget blow-out which will force drivers off the road and could bring a summer of discontent for many.

"We have heard much about tax allowances but the increase in fuel duty makes no allowance for car-dependent, rural and disabled drivers. Only last week the Prime Minister told American students that UK fuel prices would make them “faint”, yet the Government seems intent on inflicting more pain for no gain on drivers. Ironically such a hike in duty doesn’t necessarily help government finances as people will cut spending at the pumps and in shops, and it could fuel inflation."