Chancellor John Healey is facing significant pressure from industry chiefs to abandon a planned fuel duty increase, as pump prices continue to climb and strain household budgets. In a private letter to Healey, industry leaders cautioned that prices could remain elevated for months due to the ongoing conflict in Iran.
Pump prices reached a new high for the duration of the conflict on Sunday, with petrol at 160.85 pence per liter and diesel at 180.34 pence per liter. A study by the RAC found that motorists have paid an additional £500 million at the pumps since the summer travel season began on July 17, compared to prices before the war. Despite these rising costs, a planned increase of 3 pence per liter for fuel duty on January 1, 2027, followed by an additional 2 pence on March 1, is set to net billions for the Treasury.
Gordon Balmer, head of the Petrol Retailers Association, urged Healey in a letter to freeze fuel duty beyond January, using his first Autumn Budget to alleviate pressure on drivers. The letter highlighted that January and February are typically periods of financial strain for households and asked the Chancellor to abandon plans to end the current fuel duty cut. The existing 5 pence per liter cut, introduced by the Conservative party in 2022, is scheduled to expire on January 1, marking the first fuel duty rise in 15 years.
Since the conflict in Iran began on February 28, drivers have spent an extra £5.5 billion at the pump, with the Treasury collecting nearly £1 billion more in VAT as a result. The cost of a full tank of fuel has increased by £15 since the conflict started. Prime Minister Andy Burnham and Chancellor Healey have implemented a reduction in VAT on household energy bills, though critics note this has only saved families an average of 86 pence per week.
Treasury sources have indicated that a decision on the fuel duty will be made closer to Healey's Budget, scheduled for October 28.