UK drivers have spent an additional £7.5 billion at the fuel pumps due to the conflict involving Iran, according to a study by the RAC Foundation. This surge in spending has also resulted in a £1.3 billion value-added tax (VAT) windfall for the Treasury, as petrol and diesel prices have escalated to their highest levels in four years.
The increased costs for motorists began on February 28, when pump prices rose sharply after military actions related to the Iran conflict. The Treasury's increased VAT revenue stems from the 20% levy accounting for a larger sum when pump prices are higher.
Petrol prices have climbed to an average of 170.54 pence per litre, while diesel has reached 192.86 pence per litre. These figures represent the highest prices recorded since August and July of 2022, respectively. Before the conflict escalated, these prices were significantly lower at 132.83 pence for petrol and 142.38 pence for diesel. Consequently, the cost of filling a standard 55-litre car tank has increased from approximately £73 to £93 for petrol and from £78 to £106 for diesel.
The RAC Foundation study indicated that diesel drivers, encompassing those using cars, vans, and lorries, have been disproportionately affected. Of the £7.5 billion extra spent by motorists, £5.4 billion is attributed to diesel users. They also account for £894 million of the Treasury's £1.3 billion VAT gain.
Calls are mounting for the government to reconsider its planned fuel duty increase. Labour had proposed a 3 pence per litre increase in fuel duty, scheduled to take effect on January 1. However, with current pump prices at a four-year high, some politicians argue that proceeding with this hike would be detrimental to drivers.
Conservative shadow transport minister Greg Smith stated that imposing a fuel duty increase would be "a slap in the face to motorists from Whitehall." Richard Tice, deputy leader of Reform UK, criticized Labour's plan, asserting that drivers are "literally being taken for a ride" and that tax cuts, rather than further financial burdens, are needed.
Steve Gooding, director of the RAC Foundation, commented that while the resolution of the conflict is beyond the government's immediate control, easing the financial strain on drivers and businesses through fuel duty policy is within the Chancellor's purview.
The surge in global oil prices, which have exceeded $100 a barrel, is linked to the conflict and the ongoing blockade of the Strait of Hormuz, a critical route for approximately one-fifth of global oil supplies before the war. This situation has also contributed to rising fuel prices in other countries, prompting some Western governments to reduce fuel taxes.
Despite the current economic pressures on drivers, the planned fuel duty increases are set to generate billions for the Treasury. This comes as the government faces obligations for previously unfunded commitments.
The RAC Foundation's study analyzed fuel consumption data and average daily pump prices since February 28, comparing them to pre-conflict figures. Global oil prices saw a significant rise last week, surpassing $100 a barrel for the first time since July amid the escalating Middle East conflict. Brent crude, the international benchmark, rose over 3% to trade above $101, with prices fluctuating around $106 to $108 a barrel currently.
Simon Williams of the RAC noted that current fuel prices are comparable to those seen shortly after the start of the Ukraine War, with an 8 pence per litre increase since early September alone. He added that with oil prices remaining above $100 a barrel, there is no immediate prospect of relief for drivers reliant on their vehicles.