Budget 2021 rules for cars and drivers

Budget 2021: Chancellor Rishi Sunak's plans for fuel duty, road tax and more

Fuel duty frozen again

CHANCELLOR of the Exchequer Rishi Sunak has unveiled his budget 2021, including the new fiscal policies for Britain’s roads and motorists.

Sunak’s second budget understandably focused on the economic plan to help the UK recover from the COVID pandemic. But there were also key announcements on the issues that affect motorists, including VED (road tax), fuel duty, pothole repairs, electric cars and more.

Here’s what was announced in budget 2021.

Fuel duty frozen again

It would not be right to increase costs for families with an increase in duties, Sunak said, so fuel duty – the tax on a tank of petrol or diesel – has been frozen for the 11th consecutive year. The cumulative saving for the average car driver since 2010 amounts to £1,600.

RAC head of policy Nicholas Lyes said: “Drivers will breathe a sigh of relieve that the Chancellor has decided not to ‘rock the fuel duty boat’. We feared this would only pile further misery on drivers at a time when pump prices are on the rise and many household incomes are being squeezed as a result of the pandemic.

“Many drivers see their cars as a safe way to carry out essential journeys and believe having access to a vehicle is even more important as a result of the pandemic. If the Chancellor had raised fuel duty, he could have risked choking any economic recovery as it would have led to increased costs for consumers and businesses.”

Future fuel duty rates will be considered in the context of the UK’s commitment to reach net-zero emissions by 2050, the government said.

Insurance premium tax unchanged

Dan Hutson, head of motor insurance, comparethemarket.com, agreed that freezing fuel duty was essential to maintaining economic growth but said the Chancellor could have gone further to help motorists.

“It is disappointing he did not take action to reduce the cost burden of insurance premium tax (IPT), which could have helped to accelerate the UK’s recovery,” he said. “At a time when so many are struggling financially, the current rate of IPT significantly impacts the cost of driving and could price some people out of car ownership entirely. If you live in a city, you may be able to get by without a car, but for those in more rural areas, cars are essential to get to work, take children to school, or see friends and family.”

IPT is calculated based on the annual cost of insurance, which means that those who have higher premiums pay higher tax.

“This unfairly penalises young people who pay an average of £135 in IPT every year compared to £67 for the rest of the UK,” said Hutson. “When household finances are stretched, the high cost of running a car, particularly for younger people, is making driving a luxury for many who see it as a necessity once lockdown lifts.”

Road repairs and upgrades

Sunak made no mention of Britain’s crumbling road network or its pothole epidemic in today’s budget, and there was no detail about a fund for repairs in the supporting document, except £135m to progress an upgrade to the A66 Trans-Pennine road.

However, the government has previously promised to “level up” transport infrastructure, and in budget 2020 the Chancellor pledged £27bn in “new Tarmac” for roads and motorways, which he called the biggest ever investment in the “strategic road network”.

Sunak also announced last year a £2.5bn pothole fund, £500m every year over the term of the parliament, committed to the completion of the Caernarfon and Bontnewydd bypass in Wales, and promised his government would finally solve the A303 Stonehenge snarl-ups.

VED road tax rise in line with RPI

Sunak didn’t mention Vehicle Excise Duty, which many people still refer to as “road tax”, in his budget speech but the government will uprate VED rates for cars, vans and motorcycles in line with the retail price index from April 1, 2021.

But the government will freeze VED on heavy goods vehicles for 2021-22, to help support the haulage undustry during the pandemic recovery, and will suspend the HGV Levy for another 12 months from August 2021.

Company cars and van fuel benefits

From April 6, 2021, fuel benefit charges and the van benefit charge will increase in line with CPI.

Red diesel

In Sunak’s budget last year he said that the entitlement to red diesel, which is cheaper than standard diesel for cars and vans due to a lower level of duty, and rebated biofuels will be removed from April 2022.

At the time a few exceptions were announced: those using the fuel for agriculture (including horticulture, fish farming and forestry), rail vehicles and non-commercial heating would be exempt. Following a consultation, which will be published soon, further exceptions to the red diesel ban have been announced, including fishing and water freight, travelling funfairs and circuses, amateur sports clubs as well as golf courses, and non-commercial power generation.

Electric cars and charging infrastructure

Sunak made no specific reference to electric cars and charging infrastructure in his budget 2021 speech, and there’s no mention in the Budget 2021 supporting document, either.

However, the Chancellor said he wanted the UK to become a “scientific superpower” and announced the launch of a £375m fund that will invest in “highly innovative companies” such as those working in life sciences, quantum computing or clean tech, that are aiming to raise at least £20 million of funding.

In addition, £4.8m was announced to support the development of a hydrogen hub in Holyhead, Anglesey. This will pilot the creation of hydrogen using renewable energy and its potential as a zero emission fuel for Heavy Goods Vehicles.

In budget 2020, Sunak announced a £900m investment in “nuclear fusion, space and electric vehicles” as well as £500m to support the creation of “new rapid charging hubs” around the country, to make public charging of electric cars away from home easier for owners. Sunak said it would ensure drivers are never more than 30 miles away from being able to charge up their car.

Electric cars are exempt from vehicle excise duty — including those costing over £40,000, which are currently subject to a £320 a year charge for five years from the second year after registration — pay zero VED.

In 2020 Sunak also announced that the Plug-in Car Grant (PiCG), which offers a government discount on the cost of buying a pure-electric car, will continue to 2022-23 after a £403m cash injection. However, it was reduced by £500 to £3,000 and now excludes electric cars costing £50,000 or more.

In addition, £129.5m was set aside for the Plug-in Van, Plug-in Taxi and Plug-in Motorcycle grants over the same period.

Electric car drivers will also benefit from changes to the cost of energy, as the Chancellor is “increasing tax on pollution”. From April 2022, he is freezing the levy on electricity while raising it on gas, easing the cost of recharging electric cars (which is already much cheaper per mile than the cost of petrol or diesel)

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