UK Chancellor Faces Pressure to Cut Fuel Duty Ahead of Budget

Chancellor John Healey is under increasing pressure to cut Fuel Duty in the upcoming Budget, as organizations like the AA call for a reduction in the levy to help struggling households. Edmund King, President of the AA, urged the Chancellor to 'put the brakes' on spiraling pump prices and suggested extending the existing 5 pence per litre Fuel Duty relief, which is set to expire on January 1. King also proposed an additional 5 pence per litre cut.

These measures, when combined with VAT, could save drivers approximately 12 pence per litre at the pump, translating to about £6.60 on an average family car fill-up. This comes as average diesel prices recently surpassed £2 per litre for the first time, with some forecourts charging as much as £2.20 per litre. AA analysis indicates that over 2,500 of the UK's approximately 8,000 fuel stations were charging £2 or more per litre for diesel at the start of October.

Supporters of a Fuel Duty cut argue that high fuel prices contribute to inflation, impacting the cost of goods on supermarket shelves as diesel is crucial for the haulage industry. King highlighted that increased fuel costs affect the movement of goods, business operations, and ultimately, household bills. He also noted that as fuel prices rise, the Treasury collects more VAT, suggesting the Chancellor should consider this additional revenue to provide relief.

Figures from the RAC Foundation suggest that the ongoing conflict in Iran has cost drivers an additional £9.2 billion at the pumps since February 28. This has also resulted in a £1.5 billion VAT windfall for the Treasury.

Current government plans include a 3 pence per litre increase in Fuel Duty on January 1, followed by another 2 pence increase on March 1. Additionally, the 16-year freeze on Fuel Duty is scheduled to end in April, with a further 1 pence increase, plus VAT, which would add approximately 1.2 pence per litre. The cumulative increase of 7.2 pence per litre could add nearly £4 to the cost of filling a family car.

Treasury sources have stated that no decisions have been made regarding Fuel Duty increases. However, maintaining the existing 5 pence per litre duty cut, originally introduced by the Conservatives in 2022, would cost the Treasury an estimated £2.4 billion annually. According to RAC figures, average diesel prices dipped slightly to 199.90 pence per litre on Friday, while petrol averaged 174.79 pence per litre. A Treasury spokesperson commented that decisions on taxation are typically announced by the Chancellor at fiscal events and declined to comment on speculation.