TL;DR Rising petrol and diesel prices could bring the UK Treasury around £1 billion a year in extra VAT from fuel sales. Campaign groups say the windfall should be used to delay the planned 5p per litre fuel duty increase due in September, but the government says the policy is still under review.
The government could collect around £1 billion more in VAT from fuel each year as petrol and diesel prices rise, according to new analysis.
Higher pump prices mean the Treasury receives more VAT from every litre of fuel sold. If current prices continue, the Chancellor Rachel Reeves could collect around £20 million extra each month from petrol sales alone.
Diesel could bring in even more. The analysis suggests the government may receive up to £71 million extra each month in VAT from diesel, compared with prices before the recent conflict involving Iran.
The figures are based on HMRC data, which shows the UK uses around 1.55 billion litres of petrol and 2.4 billion litres of diesel every month.
Data from the RAC indicates petrol prices have risen by more than 7p per litre since late February. This increase means the Treasury now receives around 1.5p more VAT per litre, which equals roughly £22.6 million extra each month.
Diesel prices have climbed even faster, rising by more than 15p per litre. This adds around 3p extra VAT per litre, which could generate up to £76 million more each month.
Over a full year, the additional VAT from both fuels could reach around £1.1 billion.
Campaign groups say the extra revenue shows the government could reduce pressure on drivers by delaying a planned fuel duty increase of 5p per litre, which is due to take effect in September. The rise would add more than £3 to the cost of filling a typical car.
Some campaigners argue that VAT should not be charged on fuel duty, which would remove what they describe as a “tax on a tax.”
Motoring organisations have also called for the government to extend the current 5p fuel duty cut, which is currently set to end in August.
However, the Chancellor has previously indicated she is reluctant to cancel the planned increase, although ministers have said the policy is still under review.
A Treasury spokesperson said the government has extended the 5p fuel duty cut until the end of August to help support drivers while fuel prices remain high.