Drivers filling up their cars could save money by waiting until after the Budget on Wednesday, October 28, as past precedent suggests any fuel duty cut announced could take effect immediately.
Petrol and diesel prices have risen sharply in recent weeks, with diesel hitting record highs as the US invasion of Iran pushes up oil prices and fuel costs at the pump. New Prime Minister Andy Burnham, who has called himself the Cost of Living champion, and Chancellor John Healey will have their first major opportunity to address this in the Budget.
Pressure for a fuel duty cut
Debate before the Budget has centred on whether the Prime Minister will extend the current 5p fuel duty freeze, which is currently set to end on January 1. However, several organisations are calling for more, including a cut to fuel duty that could reduce prices by as much as 12p a litre.
Fair Fuel UK is urging a 10p cut to fuel duty, which would lower petrol and diesel prices by roughly 12p a litre once VAT is included. The Liberal Democrats have also called on Mr Burnham to implement a 10p fuel duty cut, as part of a £14billion “breathing space” Budget to ease the cost of living, which would also include a 10% cut to rail fares, £1 bus fares, and a reduction in VAT on kerbside electric vehicle charging to 5%.
The RAC has instead recommended cutting VAT on fuel from 20% to 15%, according to Petrol Prices.
Immediate implementation possible
In previous years, fuel duty changes have been implemented immediately. In 2022, then-Prime Minister Rishi Sunak announced a fuel duty cut in his Spring Statement that took effect the same day, with the RAC reporting “the cut taking effect at 6pm tonight”. If the Budget includes cuts to fuel duty or VAT as recommended, the price could drop the same day.
Drivers who can afford to wait for their next big fill-up could therefore save money by waiting until after Wednesday’s Budget.
Petrol Prices reports that because VAT is a percentage, the Treasury collects more when pump prices rise. Bloomberg estimates the government could take about £3.9bn more in fuel VAT over the next 12 months than if prices had stayed near pre-war levels. The RAC puts the extra collected since the conflict began on 28 February at about £1.27bn, although businesses can reclaim some of it.
Retailers may not pass on cuts
The motoring groups argue this extra money should fund relief. The RAC says the government should use its “extremely high” VAT receipts to help motorists, and the AA has asked the Chancellor to consider the additional revenue when costing a cut.
However, Petrol Prices notes that the largest difference in what drivers pay comes from where they fill up, not when. Any cut only helps if retailers pass it on, and the competition watchdog has already found some retailers slow to pass on falls in their costs. “Whatever happens on 28 October, the price at the forecourt you choose will matter more than the national average.”
Andy Burnham has said he is considering “every possible measure” to cut the cost of driving, facing questions about whether he will stop the planned fuel duty rise next year. He told BBC Breakfast: “I’m considering everything that might help people in very difficult times and I will be honest and say every possible measure is being looked at. The question I’ve got is, ‘how many can I afford?’ What can we do given the state of the public finances? And people wouldn’t thank me for making unfunded payments that then cause pressure on mortgages – and we’ve seen that in the past and we’re not going back there.”
Mr Burnham added: “We will work hard to take that pressure off people’s shoulders. But I would be the first to say it’s hard – and the long-term answer is to put water under stronger public control – energy, housing reform, those are the long-term answers.”
