Fuel duty is expected to rise by up to 7p per litre after the budget, with speculation intensifying that the chancellor will restore inflationary rises as well as ending the temporary cut.
Environmental and transport campaigners have urged Rachel Reeves to bring the cost of motoring more in line with other forms of transport, after more than a decade of fuel duty freezes at the pumps and heavy increases in rail fares.
Treasury officials are also reported to have lobbied the chancellor to seize the present opportunity to make the hike in duty, with petrol prices at a relative low compared with when Rishi Sunak announced a temporary 5p cut in 2022. The average price of a litre of petrol is now about 135p compared with 146p at the start of 2022.
Fuel duty is levied at 52.95p per litre and pulls in about £25bn a year to the exchequer. Campaigns against the duty by motoring groups and publications including the Sun have coincided with previous governments abolishing planned hikes since 2010.
According to a Whitehall source quoted by the Mail, officials have told Reeves “it’s now or never on fuel duty … They are advising her that motorists can afford it and that if she doesn’t act to end the freeze now she will find it much harder to do so later in the parliament”.
Forecasts by the government’s spending watchdog, the Office for Budget Responsibility, assume a reversal of the 5p cut and with much discussion of the £22bn “black hole” and now a £40bn “spending gap”, campaigners believe Reeves should go further.
The Campaign for Better Transport said reversing the cut and reinstating an inflationary increase would raise an additional £4.2bn in duty. Director Silviya Barrett said: “At the moment, it’s often cheaper to drive or even fly within the UK than to take the train and that shouldn’t be the case. We’re calling on the chancellor to use the budget to level the playing field for public transport.”
Domestic transport is the largest source of greenhouse gas emissions in the UK, accounting for 29.1% in 2023. Almost all domestic transport emissions are from carbon dioxide, the main source of which is the use of petrol and diesel in road vehicles.
According to a Carbon Brief analysis, duty freezes may have increased UK total greenhouse gas emissions by 7% since 2010, as drivers may otherwise have switched forms of transport or chosen more fuel-efficient cars.
Campaign groups such as Fair Fuel UK argue that ending the freeze on fuel duty would unduly hit hard-pressed motorists. The Sun newspaper has run a 14-year campaign for fuel duty to be frozen, called Keep It Down.
But new research from the Social Market Foundation research shows that the richest fifth of households have benefited twice as much as the poorest from lower fuel duty as they drive and own more vehicles, including less fuel efficient SUVs. As a result, the richest 10% of households would save £157 a year if Reeves were to maintain cuts and freezes, compared with £57 among the poorest, the thinktank said.
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Gideon Salutin from the SMF said that allowing the 5p cut to expire in spring and letting fuel duty rise with inflation would add £15bn over four years. He said: “If the chancellor wants to help those on low incomes, that revenue could be invested in buses, trains, walking and cycling. These are cheaper options than driving, more common among poorer households, but which have been neglected over the past 15 years.”
While fuel duty remains a significant source of income for the exchequer, it faces long-term decline and disappearance with the transition to electric vehicles. Reeves has also been urged in many quarters to consider a pay-per-mile tax that could initially only apply to EVs, as a more equitable and sustainable levy on motoring. But road charging schemes have historically proved even more unpopular than fuel duty rises.
A Treasury spokesperson said: “We do not comment on speculation around tax changes outside of fiscal events.”