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Fuel duty ('fuel tax')

The main financial incentives that support green cars and fuels include: reduced fuel duty ('fuel tax') on most green fuels; reduced vehicle excise duty (VED or 'road tax') for cars with lower emissions; and London Congestion Charge discounts for the greenest cars.


Fuel duty Return to top

Fuel excise duty (fuel tax) incentives have been widely used by the UK government to reduce costs for green vehicle fuels. For example, the LPG vehicle market has been mainly driven by the low duty rates for gaseous fuels. Taking into account LPG's lower energy content and higher production costs, an LPG car's fuel costs are around 30% less than for a petrol car.

UK fuel excise duty and VAT rates (from 1st April 2009)

Fuel type Fuel duty VAT Rate
Ultra-Low Sulphur Petrol 54.2 p/litre 15.0%
Ultra-Low Sulphur Diesel 54.2 p/litre 15.0%
Biodiesel used as a road fuel 34.2 p/litre 15.0%
Bioethanol used as a road fuel 34.2 p/litre 15.0%
LPG used as a road fuel 24.8 p/kg 15.0%
Natural gas used as a road fuel 19.3 p/kg 15.0%
Electricity Zero 5.0%

Source: HM Revenue & Customs - Budget 2009.

Budget 2009 announced that fuel duty for petrol, diesel, bioethanol and biodiesel will increase by 2 p/litre on 1st September 2009, and by 1p per litre above indexation each year thereafter (on 1 April) from 2010 until 2013. The differential for LPG will be reduced by 1p per litre each year.


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