Labour is facing renewed pressure to abandon its planned fuel duty increase, scheduled to take effect in January, following a study by the RAC Foundation. The research indicates that the ongoing conflict involving Iran has cost motorists an additional £5 billion at the pump since February 28.
This period coincides with a substantial increase in fuel prices, which has also resulted in a VAT windfall for the Treasury. Chancellor Rachel Reeves is reportedly set to gain approximately £1 billion in VAT revenue due to the higher prices. The 20% VAT levy generates more revenue for the Treasury when pump prices are elevated.
The RAC Foundation's findings suggest that the conflict has driven up oil prices, pushing average petrol prices above 150p per litre and diesel prices to nearly 165p. These prices represent an increase of over £10 per fill-up compared to pre-conflict levels.
Prior to the conflict, average petrol prices were around 132.83p per litre, with diesel at 142.38p. While prices saw a temporary dip after a peace deal was signed between Iran and the US, they have begun to rise again as the agreement faltered and military actions resumed.
Calls to scrap the fuel duty hike have been amplified by political figures and campaign groups. Tory shadow transport minister Greg Smith stated that it is "morally indefensible" for the planned increase to proceed, urging the new Prime Minister and Chancellor to reverse the decision. Howard Cox, founder of the FairFuel UK campaign, criticized the government for benefiting from higher prices while planning to add further costs through the duty hike, noting that the 20% VAT would automatically apply to the increased duty.
Ms. Reeves had previously postponed the planned 5p per litre fuel duty increase from September to January, citing the high cost of fuel. Steve Gooding, director of the RAC Foundation, noted that rising oil prices are dashing hopes of a return to pre-war fuel costs and suggested that further postponements of the duty increase might occur.