The Chancellor is expected to shelve plans she announced in her last Budget amid concerns about rising cost-of-living.
Rachel Reeves is reportedly planning to U-turn on a planned hike of fuel duty (Image: Getty)
Rachel Reeves could scap a planned increase in fuel duty amid concerns about the impact of the Iran war on cost of living. The Chancellor announced a hike in the duty, which has been frozen for 15 years, by 5p per litre in September as part of her annual Budget.
Fuel prices have surged since the closure of the Strait of Hormuz as part of the US-Israeli war against Iran, with a fifth of the world’s oil usually travelling through the shipping channel. Ms Reeves previously refused to back down on the fuel duty hike, but recent reports suggest a U-turn on the unpopular policy could be imminent.
Petrol prices have jumped by 20% since the Middle Eastern conflict escalated in late February, while diesel prices are up almost a third. Howard Cox, of the FairFuelUK campaign, told The Telegraph: “The current cost of petrol, particularly diesel, is crippling motorists’ and small businesses’ ability to spend in the economy.”
The Chancellor has previously refused to back down on the planned increase (Image: Getty)
He added: “Unlike other nations worldwide, the Chancellor has stubbornly yet to do anything to address the current financially debilitating effect on fill-up costs.”
Countries including France, Italy, Germany and Australia have slashed taxes on fuel in a bid to ease the impact of the Iran war on drivers.
The Chancellor said in last year’s Budget that fuel duty – currently at 52.95p per litre for standard petrol and diesel – would return to its March 2022 levels by March 2027.
This was expected to happen incrementally, with a 1p rise on September 1, 2026, followed by a further 2p from December 1, and another 2p next spring.
Research from motoring charity the RAC Foundation estimated that rises in pump prices since the beginning of the conflict in the Middle East led to motorists paying an additional half a billion pounds for petrol and £1.5billion in just over a month.
Nationwide petrol costs currently average £1.57 a litre for unleaded petrol and £1.88 for diesel, according to the RAC.
Alongside hiking prices at forecourts, the war in Iran could send energy bills soaring when Ofgem announces its new cap in July, with costs expected to jump by as much as 10%.
Victoria Scholar, head of investment for Interactive Investor, warned that inflation could also rise in the coming months as the Iran energy price shock catches up with the cost of living.
She said: “Were it not for the Iran war, it would be about this time that the UK inflation rate was finally expected to fall back to the Bank of England’s target. Instead, interest rate and inflation expectations have drastically rerated higher.”
A spokesperson for the Treasury said: “We do not comment on tax speculation.”