What is fuel duty and what difference will a 5p cut make to costs?

23 March 2022, 13:20 | Updated: 23 March 2022, 13:37

Fuel duty has contributed to the rising petrol and diesel prices
Fuel duty has contributed to the rising petrol and diesel prices. Picture: Getty

By Zoe Adams

Petrol and diesel prices are at an all-time high meaning Rishi Sunak has implemented a 5p fuel duty cut - but what is it? And how much does it impact prices?

The cost of living, alongside increasing petrol and diesel prices, have been a huge concern for residents in the UK in recent months.

But with the cost of fuel being at a record 165.9p for petrol and 177.3p for diesel, and with the Russia and Ukraine war threatening to make costs surge more, Rishi Sunk has been forced to addressed fuel duty during his spring statement.

The Chancellor of the Exchequer confirmed he will be reducing the fuel duty by 5p for the second time in 20 years and that it will be in place for a full 12 months.

Petrol, diesel and other fuel costs will see this come into action from 6pm on March 23rd until March 2023.

Related article: Cost of living crisis: Inflation rises by 6.2% and its highest level in 30 years

Related article: Why is petrol so expensive? And when will fuel costs go down?

So what exactly is fuel duty? And how much will a 5p cut really impact households? Here's everything you need to know including what makes up the price of petrol and just why prices are so high right now.

Fuel duty will be reduced by 5p for a full 12 months
Fuel duty will be reduced by 5p for a full 12 months. Picture: Getty

What is fuel duty?

A form of tax, fuel duty makes up a part of the price you pay when buying petrol, diesels and other vehicle fuels.

It's charged at per litre of fuel and accounts for over a third of the overall price.

Fuel duty had been frozen since 2001 and has been again by Rishi Sunak in March 2022.

What does the government spend fuel duty on?

It comes as no surprise fuel duty brings in a huge amount of money for the government.

It was reported to be around £28billion in 2019-20 which was pre coronavirus pandemic. This equalled around £1,000 from each UK household.

Fuel duty is the fifth largest of all taxes in terms of incoming funds to the government.

What difference will a fuel duty freeze make?

Rishi Sunak confirmed fuel duty will come down by 5p and will be frozen until March 2023.

According to the RAC, this will make it £3.30 cheaper to fill up a typical family car with a 55-litre tank.

What makes up the price of petrol per litre?

The price of petrol per litre is made up of five charges:

  • Fuel duty - 35%
  • Cost of petrol to supplier - 33%
  • VAT - 17%
  • Cost of biofuel content - 7%

Why is petrol so expensive right now?

Petrol and diesel prices are at a record high after the wholesale price for crude oil increased.

Price increases began at the beginning of the Covid pandemic as the demand for energy rose, and now, following Russia's invasion of Ukraine, the UK is seeing some of the highest prices in 14 years.

There are concerns Russia could react to the restrictions put on them and limit its oil supplies to Europe.

Russia is one of the biggest traders of oil in Europe and is also one of the largest energy producers and oil exporters in the world.

The UK is said to only import 6% of its crude oil from Russia, but the overall effect of supplies globally would still see the worldwide wholesale price increase.