Budget 2016: Freeze in diesel and HGV taxes announced

Despite calls to encourage move away from diesels, Chancellor freezes fuel duty for sixth year running

Tax on both petrol and diesel fuel will be frozen in 2016, as will levies on heavy goods vehicles (HGVs), the Chancellor of the Exchequer revealed today (March 16) — despite calls from air quality campaigners to encourage a move away from diesel cars.

The Chancellor George Osborne announced his Budget 2016 today (March 16)

The Chancellor George Osborne announced his Budget 2016 today (March 16)

Company car tax incentives for greener vehicles and a further £38 million in research and development grants for low emission vehicles were also included in George Osborne’s 2016 Budget, along with tax cuts for North Sea oil and gas.

Budget 2016 measures affecting air quality:

  • Petrol and diesel fuel duty frozen
  • Heavy goods vehicle (HGV) Road User Levy and VED rates frozen
  • £38 million Office for Low Emission Vehicle grants in 2016
  • £15 million support for research into low emission vehicles in Midlands
  • Zero emission van incentives in Van Benefit Charge tax
  • Company car tax to remain based on CO2 emissions
  • Government to consult on reform of Ultra Low Emission Vehicle CO2 level banding
  • North Sea oil and gas tax cuts

Fuel duty

Announcing his fiscal plans for the coming year in Parliament today, the Chancellor said that fuel duty would be frozen for the sixth year in a row “as I know that fuel costs still make up a significant part of household budgets and weigh heavily on small firms”.

Fuel and oil prices have fallen over the last year, and calls have come for the government to take advantage of this by raising vehicle excise duty (VED) on diesel fuel in order to drive down air pollution emissions and potentially fund a diesel vehicle scrappage scheme (see story).

“It’s the tax boost that keeps Britain on the move” – George Osborne

But many Conservative backbenchers were thought to be against this, and Mr Osborne agreed that the main fuel duty rate should stay at 57.95p per litre as “families paid the cost when oil prices rocketed; they shouldn’t be penalised when oil prices fall”.

He said the freeze would save the average driver £75 a year and small businesses with a van £270 a year, describing this as a “tax boost that keeps Britain on the move”.


And, while the likes of Conservative candidate for London Mayor Zac Goldsmith have backed restrictions on HGVs in urban areas to boost air quality, today’s Budget includes a freeze on rates of vehicle excise duty (VED) rates and the Road User Levy for larger trucks and goods vehicles.

The VED exemption for classic cars will also be made permanent from 2017, although the rate for cars, vans, motorcycles and motorcycle trade licenses increase by RPI from April.

The Budget 2016 document states that as transport is a major cost base for many businesses, the government “recognises the link between low fuel prices and economic growth”.

It claims that the freeze means the average small business with a van will save £12 on each tank of fuel in comparison to before 2010.


The Van Benefit Charge (VBC) tax will also increase with RPI, the government will extend VBC support for zero-emission vans, meaning that from April 6 2016 the charge will be 20% of the main rate in 2016/17 and 2017/18, then increasing “on a tapered basis” up to 2022.

“The government will review the impact of this incentive at Budget 2018 together with enhanced capital allowances for zero emission vans,” the Budget 2016 states.

Company cars

Meanwhile, after committing in 2013 to reviewing incentives for ultra low emission vehicles this year, the government said it would continue to base Company Car Tax on the carbon dioxide (CO2) emissions of cars from 2020/2021.

The government has also promised to consult on the reform of the bands for ultra-low emission vehicles — which currently see cars branded as ULEVs at below 75g of CO2 per kilometre — stating that this would allow it to “refocus incentives on the cleanest cars”.

As announced in the 2015 Budget, Company Car Tax will increase by three percentage points for cars emitting more than 75g CO2/km to a maximum of 37% in 2019/20.

“By buckling to his backbenchers on fuel duty he’s also missed the opportunity presented by low fuel prices to raise money to cut fares on public transport and invest in local alternatives to driving” – Caroline Lucas MP

In addition, the Budget sets out plans to extend the 100% First Year Allowance (FYA) for businesses purchasing low emission cars for a further three years to April 2021, as well as cutting the main rate and FYA thresholds for capital allowances for business cars “to reflect falling vehicle emissions”.

These are described in the Budget as “measures to support transition in the UK to cleaner zero and ultra-low emission vehicles, which will help improve air quality in the UK’s towns and cities and protect the environment for the next generation

Low emission funding

The government’s Office for Low Emission Vehicles will provide £38 million in grants — matched by the private sector — towards research and development into low emission technology across the UK this year, as well as another £15 million funding to support research into lowering vehicle emissions in the Midlands.


Green Party MP Caroline Lucas called today’s Budget announcements on fuel duty and renewables “climate wrecking” which focuses on “fossil fuel dependency”.

She said that Mr Osborne had “missed the opportunity presented by low fuel prices to raise money to cut fares on public transport and invest in local alternatives to driving”.

MS Lucas MP said: “By ploughing millions into road build programmes at a time when many local bus services are threatened and air pollution represents a public health crisis, he’s failed to do what’s desperately needed: hardwire the urgent need to tackle climate change and pollution into infrastructure spending.”


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