Fuel prices could soon rise by up to 7p per litre as Chancellor Rachel Reeves looks for ways to raise funds in the upcoming Budget. According to government insiders, the 5p cut in fuel duty, which was meant to be temporary, won’t be extended beyond its expiration in March next year.
Reeves is also considering bringing back the annual fuel duty increase, after being advised by Treasury officials that now is the best chance to end a 14-year freeze. This could mean an additional 1p or 2p increase, with VAT adding to the total price motorists will pay at the pump.
If fuel duty goes up by 7p, it would cost drivers about £3.85 more to fill up an average family car. This move would contradict Labour’s promises not to raise taxes on working people. However, with fuel prices currently at their lowest since Russia's invasion of Ukraine, ministers believe it’s a good time to introduce the change.
The current fuel duty sits at 52.95p per litre, but the Treasury has been looking at raising it by as much as 15p. Although Reeves is likely to reject such a significant increase due to concerns over backlash from drivers and businesses, the pressure is on her to make changes.
Treasury officials argue that ending the fuel duty freeze now is crucial, as it will only become harder to do later.
Economist Adam Corlett from the Resolution Foundation explained, "Fuel duty is set to rise by around 6p a litre next spring due to inflation and a temporary cut expiring.
"Cancelling this and future annual increases would cost £5billion a year by the end of the parliament – money the Chancellor simply doesn't have as she tries to plug a £40billion funding hole for our schools, hospitals and other public services."
In the House of Lords, government minister Baroness Blake avoided answering questions about potential plans for road pricing, which could make up for the lost revenue as more people switch to electric vehicles. Conservative peers warned that introducing per-mile pricing could slow down the adoption of EVs, but no further comments were made on the matter.
