The ongoing fuel crisis has seen the cost of filling up become “truly eye-watering”.
Ms Reeves is under mounting pressure to act to help Britain’s drivers and the economy (Image: PA)
Rachel Reeves has been undermined by Labour’s cost of living tsar who suggested the fuel duty freeze should stay.
The Chancellor extended the 5p per litre cut in tax – introduced after Russia‘s invasion of Ukraine in 2022 – at last year’s Budget.
But it will expire in September and she has given no indication of a U-turn despite mounting household bills for tens of millions of struggling families.
Pump profiteering has been exacerbated by the Middle East conflict with diesel now 30% more expensive since war erupted on February 28.
The crisis has seen the cost of filling up become “truly eye-watering”.
Diesel now averages £185.23 per litre while petrol is £154.45 – a 16% hike.
Ms Reeves now faces calls to follow the lead of other countries which have introduced petrol price caps, VAT or excise tax cuts to keep prices lower.
Campaigners have warned off rampant ‘pump profiteering’ because of the Middle East conflict (Image: PA)
Iceland boss Lord Richard Walker, the Government’s cost of living champion, said: “The 5p fuel duty cut (is) going to expire in September. I think given where we are we do need to be thinking and talking about extending it or enlarging it. Interestingly, the Australian government, I was reading, has recently taken a 14p per litre cut to their fuel tax. This cut is 5p.”
The Treasury is now thought to be pocketing almost £100m a month in VAT on fuel sales because of the Middle East oil stranglehold.
It has infuriated campaigners because in the UK drivers face a double whammy at the pumps with fuel duty, a form of excise tax, levied at a flat rate of 52.95p per litre for both petrol and diesel. This rate has been frozen since 2011-12.
In addition VAT is also charged on both the product price and the duty at a rate of 20%.
Next chief executive and Tory peer Lord Simon Wolfson said the Government would be taking higher tax on fuel duty because of the spiking prices and could “balance the books” by bringing it down to ensure the tax take remains the same.
Lord Walker said: “Lord Wolfson is a great guy and very intelligent – and he might have a point there.”
His intervention will pile more pressure on the Government to act to help households stave off what some fear is a path to recession.
The global fuel crisis was triggered by the US-Israeli led invasion of Iran which precipitated a blockade of the Strait of Hormuz through which one fifth of the world’s oil and liquefied natural gas supplies passes. It remains open to all except “enemy” tankers.
Howard Cox, founder of lobby group Fair Fuel UK, said: “What can the Government do? It’s very simple – cut fuel duty now and promise not to put it up for the remainder of this parliament – not just in the Autumn Budget and make sure the 5p fuel duty cut (implemented by Rishi Sunak during the Covid pandemic) is not reversed and also make damn sure opportunistic profiteering doesn’t take place.
“One of the things I would like to see is VAT taken off fuel duty because we have this double taxation – VAT on top of fuel duty – which is totally immoral.
“We have got to put pressure on MPs because they are not representing us, they are not representing motorists, and they are not doing anything good for the economy.”
The fuel emergency comes as the cost of living crisis deepens for tens of millions of squeezed households and amid fresh fears inflation – currently 3% – could rise to 4% or above triggering a recession.
Analysis of responses to a Fair Fuel UK poll of more than 68,000 motorists revealed that if pump prices rise above 20p per litre on average “all the signs from drivers are that the economy will sink into a recession and they will cut back on spending, even on basic food purchases”.
Mr Cox said: “The Chancellor could calm inflationary pressure and protect the economy from recession by cutting fuel duty now and promising to scrap any increase in this regressive tax in the lifetime of this Parliament.
“Yet still this clueless Labour government is doing nothing to help motorists and the economy as they wallow in billions of extra VAT income.”
RAC spokesman Simon Williams said: “Drivers hitting the roads this Easter will be faced with some truly eye-watering fuel prices. Petrol has now gone up nearly 22p a litre – or 16% – to an average of 154.45p since the start of the conflict in Iran on 28 February. It was last this high at the end of October 2023.
“The diesel story is even more dramatic, having shot up by almost 9p in the last week alone. It’s now risen by 30% since the end of February, with 43p a litre being added, taking it to an average 185.23p – a price last recorded at the end of November 2022.”
The Treasury said: “We have the right economic plan for a more volatile world, taking a responsible approach to supporting working people in the national interest.
“We’re taking £150 off energy bills, fuel duty is frozen until September and we’re providing targeted support for those facing higher heating oil costs. We’re also acting to protect people from unfair price rises if they occur, bringing down food prices at the till, as well as freezing rail fares and prescription fees.”