The UK government has abandoned a planned increase in fuel duty to support motorists grappling with soaring pump prices driven by the conflict in Iran. Prime Minister Sir Keir Starmer confirmed to MPs that the 5p per litre fuel duty cut, initially introduced by the Conservative government in March 2022, will be extended through the remainder of the year. This decision keeps the rate at nearly 53p per litre.
Previous Plans Scrapped
Originally, rates were set to rise by 1p per litre on September 1, followed by two separate increases of 2p per litre on December 1 this year and March 1 next year. These increments have now been cancelled.
Impact of Iran Conflict
Iran's restrictions on tanker movements through the Strait of Hormuz have pushed average petrol and diesel prices at UK forecourts up by 26p and 44p per litre respectively compared to pre-conflict levels on February 28. Sir Keir stated: “Families across the United Kingdom are facing impacts of a war that we did not choose.” He added: “This is not our war, but while the parties opposite wanted to jump into it, Labour will always protect working people.”
Industry Reactions
Steve Gooding, director of the RAC Foundation, noted: “Although today’s news on fuel duty won’t have the immediate effect of bringing forecourt prices down, at least it shows that ministers have registered the financial pain caused by rampant pump prices for individuals and for business. Since the start of the Iran conflict, drivers have already paid a war premium of a staggering £3 billion in inflated fuel prices, half-a-billion of which has gone to the Exchequer in VAT receipts.”
Jack Cousens, head of roads policy at the AA, said the announcement “gives an opportunity for the Government’s Fuel Finder scheme to show its value, by showing drivers where to find the best prices.” He also highlighted that the Treasury has “already benefited from high pump prices” through extra VAT receipts.
Support for Hauliers and Farmers
Sir Keir also announced a “12-month road tax holiday” for hauliers. The Treasury confirmed they would pay £1 at their annual renewal, saving £600 for a typical heavy lorry and £912 for the largest vehicles. Farmers, rail freight operators, and other users of red diesel will see their fuel duty cut from 10.18p to 6.48p per litre from June 15 until the end of the year, aimed at reducing goods costs.
Cost and Future Outlook
Downing Street indicated the package will cost £455 million, to be scored at the Budget by the independent Office for Budget Responsibility. The Prime Minister’s official spokesman said: “Given the current impact of the conflict, it is right to extend the 5p cut to the end of this year.” However, it remains unclear whether the freeze will continue beyond 2026, potentially leaving motorists facing increases in the new year. Chancellor Rachel Reeves is expected to outline future fuel duty plans in the autumn Budget.
The RAC reported on Tuesday that the average petrol price at UK forecourts was 158.5p per litre, the highest since December 2022, and warned that wholesale costs could push prices to at least 160p per litre in the coming weeks.
