Chancellor John Healey is facing mounting pressure to abandon Labour's planned fuel duty increase, as petrol prices reach new post-Iran war highs, costing families an estimated £500 million this summer alone. Industry chiefs have warned in a private letter to Healey that pump prices are likely to remain elevated for months due to the ongoing conflict.
The Petrol Retailers Association (PRA), representing over 5,000 forecourts, has urged Healey to scrap the planned 3p per litre duty hike set for January 1 and a further 2p increase on March 1. Gordon Balmer, the PRA's boss, stated in the letter that January and February are typically months when household budgets are most strained and asked the Chancellor to freeze fuel duty beyond January in his first Autumn Budget. "By doing this, you can help motorists, businesses, and ordinary working families by providing them with confidence that you are doing what is within your power to support them," the letter reads.
Average petrol prices surged to 160.85 pence per litre and diesel to 180.34 pence per litre on the day of the report. This marks a new post-Iran war record for petrol. Before the conflict, average prices were 132.83p per litre for petrol and 142.38p for diesel, meaning a fill-up is now approximately £15 more expensive for petrol and £20 more for diesel. The RAC Foundation estimates that since July 17, when the summer holidays began, these higher prices have cost families £500 million at the pumps.
The ongoing conflict in the Middle East is cited as a cause for extreme fluctuations in crude oil and wholesale fuel costs. While a temporary ceasefire between the US and Iran in June led to a dip in prices, they began rising again when a tentative peace deal broke down last month. This has led to Western oil supplies being impacted.
The Treasury is reportedly set to benefit significantly from the price surge, having already collected an estimated £920 million more in VAT since the conflict began due to higher fuel prices. The 20% VAT levy naturally increases Treasury coffers when prices rise. The planned fuel duty hike, if it proceeds, is expected to net billions more for the Treasury.
Critics argue that recent government measures, such as a reduction in VAT on household energy bills, have offered minimal relief, saving families only about 86p per week on average. The Conservative Party's shadow transport secretary, Richard Holden, criticized the planned fuel tax hike, calling it a "Christmas holidays fuel tax hike" that will "hurt businesses and hammer hardworking families." He urged Prime Minister Andy Burnham not to fund spending plans through tax increases.
Official sources indicated that a decision on fuel duty would be made closer to Healey's first Budget on October 28. Fuel duty has been frozen at 52.95p per litre for over a decade, with a 5p per litre cut introduced by the Conservatives in 2022 set to expire on January 1. The RAC's fuel spokesman, Simon Williams, suggested that while petrol prices might stabilize soon due to falling wholesale costs, diesel prices are expected to continue rising, potentially reaching 185p per litre in the coming week.