UK Chancellor Faces Pressure to Cut Fuel Duty Amid Rising Prices
The AA urges Chancellor John Healey to extend existing relief and implement further cuts to ease the burden on households and businesses.
Chancellor John Healey is under increasing pressure to reduce Fuel Duty in the upcoming Budget, as organizations like the AA call for significant cuts to alleviate the financial strain on households grappling with elevated pump prices.
Edmund King, President of the AA, urged the Chancellor to "put the brakes" on escalating fuel costs, particularly in light of plans for a potential Fuel Duty hike in the new year. King advocated for extending the current 5 pence per litre Fuel Duty relief, initially introduced by the Conservative party and set to expire on January 1, while also calling for an additional 5 pence per litre reduction. These combined measures could save drivers approximately 12 pence per litre, or around £6.60 on an average family car fill-up, when Value Added Tax (VAT) is factored in.
The call for action comes as average diesel prices have surpassed £2 per litre for the first time this month, with some forecourts charging as much as £2.20. AA data indicates that in early October, over 2,500 of the UK's approximately 8,000 fuel stations were selling diesel at or above £2 per litre.
Supporters of a Fuel Duty cut argue that high fuel prices contribute to inflation, impacting the cost of goods as diesel is a fundamental fuel for the haulage industry. The current surge in prices has been linked to the ongoing conflict in Iran, which began on February 28. King emphasized that fuel prices affect more than just individual motorists, stating that increased costs for transportation and business operations ultimately translate into higher household bills.
He also highlighted that as fuel prices rise, the Treasury collects more VAT. The AA believes the Chancellor should consider this additional revenue and use the Budget to provide financial relief.
Figures from the RAC Foundation suggest that the conflict in Iran has already cost UK drivers an additional £9.2 billion at the pumps since February 28. This has resulted in a £1.5 billion VAT windfall for the Treasury due to higher price points.
Under current government plans, Fuel Duty is scheduled to increase by 3 pence per litre on January 1, coinciding with expected rises in household energy bills as Ofgem's price cap increases. A further 2 pence per litre increase is slated for March 1. Additionally, the Treasury is scheduled to end a 16-year freeze on Fuel Duty in April, adding another 1 pence per litre, with VAT accounting for an additional 1.2 pence per litre. The cumulative 7.2 pence increase would add nearly £4 to the cost of filling up an average family car.
Treasury sources have stated that no definitive decisions have been made regarding Fuel Duty increases. However, retaining the existing 5 pence per litre duty cut, which would cost the Treasury an estimated £2.4 billion annually, is being considered at a time when balancing the budget presents a challenge.
Recent data from the RAC shows that average diesel prices across the UK slightly decreased by Friday, reaching 199.90 pence per litre, while petrol averaged 174.79 pence per litre.
A Treasury spokesperson commented that decisions regarding taxation are made by the Chancellor at fiscal events and that the department does not routinely comment on speculation or proposals.