Chancellor John Healey is under mounting pressure to cancel a planned increase in fuel duty as pump prices reach record highs, driven by the ongoing conflict in Iran. Industry chiefs have privately urged the Chancellor to abandon the tax hike, warning that prices are likely to remain elevated for months.
The Petrol Retailers Association, represented by its boss Gordon Balmer, has called on Healey to use his upcoming Autumn Budget to freeze fuel duty beyond January. In a private letter to the Chancellor, Balmer argued that January and February are typically the most financially strained months for households and that abandoning the planned increase would align with the government's focus on affordability.
Pump prices reached a new high since the conflict in Iran began, with petrol costing 160.85 pence per liter and diesel at 180.34 pence per liter. According to a study by the RAC, motorists have spent an additional £500 million at the pumps since the summer travel season commenced on July 17, compared to prices before the war. Since the conflict's start on February 28, drivers have paid an extra £5.5 billion at the pumps, resulting in nearly £1 billion more in VAT revenue for the Treasury. A full tank of fuel is now approximately £15 more expensive than at the conflict's outset.
Despite these figures, fuel duty, currently at 53 pence per liter, is slated for a 3 pence per liter increase on January 1, 2027, followed by an additional 2 pence increase on March 1, 2027. These increases are expected to generate billions for the Treasury. A previous 5 pence per liter cut to the levy, introduced by the Conservative party in 2022, is set to expire on January 1, 2027. This cut had meant fuel duty had not risen for 15 years.
In parallel, Chancellor Healey and Prime Minister Andy Burnham have reduced VAT on household energy bills. However, critics note this measure has only provided an average saving of 86 pence per week for families.
Treasury sources have indicated that a final decision regarding the fuel duty will be made during Healey's Budget presentation on October 28.