The Chancellor, Rishi Sunak, announced a temporary cut to fuel duty of 5p per litre on petrol and diesel in the Spring Statement on 23 March 2022. The Treasury said the cut would run for 12 months and take effect from 6pm on the day of the announcement, on a UK-wide basis1. The same document states the reduction is worth around £100 for the average car driver, £200 for the average van driver and £1,500 for the average haulier, compared with uprating fuel duty in 2022-231.
The Treasury said the cut brings fuel duty down to 53p per litre, from a rate that had remained static since 20112. It described the move as the largest cash-terms cut across all fuel duty rates at once ever, and only the second such cut in 20 years2. Total savings for households and businesses over the next year were put at £2.4bn2. Carbon Brief reported that the cut would not cancel out recent increases in fuel costs, which it said had risen by roughly 40 to 50p since spring 20212.
Alongside the duty cut, the government said it would expand the scope of VAT relief for energy saving materials so that households having them installed pay 0% VAT1. The Chartered Institute of Plumbing and Heating Engineering (CIPHE) reported that the 0% rate applies to insulation, heat pumps and solar panels for homeowners in England, Scotland and Wales, and would stay in place for five years3. Carbon Brief reported that solar panels, heat pumps, insulation, and wind and water turbines were covered, having previously been out of scope under EU rules, and that the 0% rate applies to both materials and installation cost2. The government said a typical family having rooftop solar panels installed would save more than £1,000 on installation and £300 a year on energy bills2.
Other measures in the statement included an extra £500m for the Household Support Fund from April, on top of £500m provided since October 2021, bringing total funding to £1bn1. The National Insurance Primary Threshold and Lower Profits Limit were to rise from £9,880 to £12,570 from July 20221. CIPHE noted that the 1.25% National Insurance increase was still going ahead3. The basic rate of income tax was to fall to 19% from April 20241.
"There is good news for consumers looking to improve the energy efficiency of their homes and invest in green technology. The 0% VAT rate will help cut costs and increase demand. However, we must ensure systems are designed and installed correctly to offer the required energy savings."
Why it matters for households
The fuel duty cut reduces the price paid at the pump for a year, but it does not change how much fuel a home uses, and Carbon Brief reported that it does not offset the larger rise in fuel costs over the previous year2. For a household's energy independence, the more durable change is the VAT relief on energy saving materials, which lowers the upfront cost of measures that reduce how much energy a home needs to buy. The government's own estimate of £300 a year off energy bills for a typical solar installation is a running saving, not a one-off2.
The statement also set out the government's view of the wider position, describing the UK as "a net energy importer with a high dependence on gas and oil"1. It said the energy price cap protects consumers from rapid wholesale market changes in the short term1, and noted that UK and European wholesale gas prices rose by more than 30% between mid-February and mid-March 2022, with global oil prices up 9.3% over the same period1. Inflation was forecast at 7.4% in 20221.
CIPHE raised a practical constraint on the VAT measure, saying the UK does not currently have enough trained installers of the green technologies supported by the cut, and that it would have welcomed an immediate strategy to address this3. It said a review of employee training and the Apprenticeship Levy was overdue3.
What happens next
The government said it would phase out the import of Russian oil by the end of 2022, and that it would soon set out an energy security plan including measures across hydrocarbons, nuclear and renewables1. Carbon Brief reported the strategy was expected the following week2. The VAT relief was to take effect from April 2022, a year earlier than previously planned1. The government said the Northern Ireland Executive would receive a Barnett formula share of the relief until it could be introduced UK-wide2.
Sources3 cited
- Spring Statement 2022, assets.publishing.service.gov.uk
- Spring statement 2022: Key climate and energy announcements - Carbon Brief, carbonbrief.org
- Tax cuts for green technology | CIPHE, ciphe.org.uk