A 5p cut in fuel duty is expected to be scrapped in the upcoming Budget, according to the RAC motoring organisation, because drivers are not gaining any benefit.
The RAC has claimed that retailers have failed to pass on lower petrol and diesel prices to motorists and instead have boosted their own profits.
On Wednesday, Prime Minister Sir Keir Starmer refused to rule out a rise in fuel duty in the forthcoming Budget.
Chancellor Rachel Reeves will set out Labour’s first Budget on 30 October, which Sir Keir has warned “will be painful”.
Fuel duty has been frozen for more than a decade under the Conservative government. In 2022, the then chancellor Rishi Sunak cut it by 5p per litre. That was extended until March next year.
Simon Williams, head of policy at the RAC, said Ms Reeves “knows the 5p discount is losing the Treasury £2bn a year”.
The UK’s competition watchdog recently found that drivers were still paying too much for fuel, costing them £1.6bn in 2023.
Consequently, the RAC said it had reached the conclusion that Ms Reeves “has no option but to put fuel duty back up”.
“We’d normally be against any increase in duty,” said Mr Williams. “But we’ve long been saying drivers haven’t been benefitting from the current discount due to much higher-than-average retailer margins.”
Sir Keir has refused to rule out any changes to fuel duty. During the election, Labour pledged to protect “working people” by not raising income tax, VAT or national insurance.
In response to whether an increase in fuel duty would be a tax increase for working people, Sir Keir said on Wednesday that Labour would stick to its past promises on tax.
“Beyond that, I’m not going to speculate about the Budget,” he said.
Ms Reeves has also refused to comment on speculation that she may increase inheritance tax, capital gains tax or reform tax relief on pensions.
A Treasury spokesperson said: “The chancellor will set out decisions on tax policy at the Budget on 30 October.”
The chancellor has already set out plans to scrap winter fuel payments for pensioners in England and Wales who are not on benefits.
Within weeks of taking over, Labour claimed that it had uncovered a major shortfall in public finances – which former chancellor Jeremy Hunt has denied.
The AA is opposed to the 5p cut being scrapped. The motoring group said the government already takes 52.95p per litre in fuel duty as well as 20% in VAT.
The Office for Budget Responsibility, the independent fiscal watchdog, forecasts that duties on petrol, diesel and other fuels will raise £24.7bn for 2023-24.
The AA said an increase in fuel duty “could backfire by fuelling inflation and hitting those in rural areas who have no alternative to the car, disabled drivers, and low-income shift workers”.
According to the latest figures from the RAC, the average price for a litre of unleaded petrol is 142.17p across the UK and 147.02p for diesel.
Last month, the Competition and Markets Authority (CMA) found that supermarkets’ profit margins – the difference between the price they pay to buy fuel and what they charge motorists – had doubled since 2019.
The CMA’s chief executive, Sarah Cardell, said she would work with the new government to introduce a “real-time fuel finder scheme” to show motorists where the cheapest petrol and diesel prices are in their area.
