Drivers 'will be hit hard' if change goes ahead

Motoring organisations fear a 14-year freeze on fuel duties will be abandoned by the Government. Any such move could add 5p to the price of a litre of unleaded and diesel.

The move would typically add around £50 a year to the cost of filling up, while raising more than £2.7 billion for government coffers. The Competition & Markets Authority (CMA) has recently revealed a £1.6 billion rip-off of drivers after petrol retailers pushed up their margins on fuel sales.

The gap between what they are paying for fuel and selling to the public is running at historic highs, largely due to a lack of meaningful competition.

And there are fears that the Chancellor Rachel Reeves will add to the problem by abandoning a freeze on fuel duty that was applied through the 14 years of the last Tory government.

Such a move would help fill a black hole in the nation’s finances that Labour is blaming on the Conservatives, while it could also put pressure on households to switch to electric vehicles.

Ahead of the election, Labour guaranteed no increases in income tax, National Insurance of VAT – and “no increases in taxes on working people”.

Sir Keir Starmer refused to entirely rule out a fuel duty increase. The Labour leader said he supported a freeze “every single time it has come up” but that “fuel duty will have to be decided budget by budget”.

Luke Bosdet, the AA's spokesman on pump prices, said: “Overall, the AA is concerned that current high prices could be made significantly worse with any hike in fuel duty in October.

“However, the Budget on 30 October could be pivotal.”

He told This is Money: “In the Spring Budget 2024 it was confirmed that fuel duty will remain frozen for a 14th consecutive year - and the then chancellor extended the 'temporary' 5p-a-litre cut for another 12 months. If the current Chancellor reverses this it will hit drivers, businesses, and the economy hard.”

There is a possibility that increases in duty could be offset to some extent by new measures to boost competition between petrol retailers.

The CMA and government are in the process of setting up a new app-based Pumpwatch scheme that would allow drivers to identify the cheapest petrol and diesel in their area.

The hope is that this would drive down prices to the levels seen in Northern Ireland, where fuel is typically 4p-8p a litre cheaper due to much more competition.

The RAC has called on the government to maintain the current 5p duty cut – due to be reversed next March – until at least Spring 2026 or until such time as the Pumpwatch scheme is up and running.

However, the Social Market Foundation think-tank has argued for the fuel duty cut to be axed on the basis it unfairly benefits “wealthy drivers”.

It said: “Listening to the rhetoric around fuel duty freezes, and you would think that it provides urgently needed relief for lower-income households and working-class commuters. But in actual fact those households tend to drive less, own fewer cars, and travel more efficiently.

“In contrast, Britain’s wealthier drivers tend to drive less fuel-efficient cars, with the 'Chelsea Tractor' synonymous with inefficient SUVs.”