Fuel duty 2023: is UK fuel duty going to increase, what have the OBR and Treasury said?

Fiscal watchdog predicts 12p per litre jump in petrol and diesel prices if fuel tax is increased

UK fuel duty may be set to soar by 23% from March 2023, according to the Office for Budget Responsibility (OBR).

The finance watchdog’s November forecast includes a prediction for the sharp increase which it says would be a record cash increase in the tax. According to its estimates, the change would add 12p per litre to the price of petrol and diesel.

The report refers to a “planned 23 per cent increase in the fuel duty rate in late-March 2023” and says if such an increase was implement it would be the first time in 12 years that a government had increased fuel duty in cash terms. It would, according to the OBR, add around £5.7 billion to the government’s tax receipts next year.

Chancellor Jeremy Hunt made no reference to fuel duty in his Autumn Statement and the Treasury insisted that no decision had been made on fuel duty rates for next year.

Fuel duty was cut by 5p per litre in March 2022 by then-Chancellor Rishi Sunak in an effort to bring spiralling fuel costs under control. That temporary reduction is due to end in March 2023 and its impact on fuel prices would be compounded by any further duty increase in the Spring Budget.

RAC head of roads policy Nicholas Lyes: “As things stand, drivers will face an enormous hike in the cost of fuel next spring due to fuel duty going up. The OBR expects to see 12p added to a litre of fuel, as a result of the current 5p duty cut coming to an end combined with its scheduled rise – something that’s not been seen for over a decade due to duty being frozen in successive Budgets.

“The Government has always made a big deal of cancelling duty rises in the past and will face colossal pressure to do the same next year – after all, a rise of these proportions would heap yet more misery on the millions of households that depend on their vehicles, most of whom will just endured one of the costliest winters on record.”

Fuel duty has not increased for 12 years as successive Chancellors have repeatedly postponed proposed increases.

Fuel duty was cut in March 2022 in an effort to stabilise spiralling prices but costs continued to climb until July (Photo by Finnbarr Webster/Getty Images)

A Treasury spokesperson told National World that the 23% figure from the OBR was based on forecasts that “are subject to change”. They added: “We have not announced anything of fuel duty today, the existing 5p cut will remain in place until March 2023 (a tax cut which is worth £2.4bn) and final decisions on fuel duty rates will be made at the Spring Budget.”

Mr Lyes said that instead of focusing on changes to fuel duty, the government needed to start considering an entirely new system of vehicle taxation. He said: “Instead, we urge the Government to focus on giving serious thought to developing a fair taxation system that can eventually replace fuel duty, which is effectively on borrowed time given the numbers of zero-emission vehicles on the roads that pay no fuel duty whatsoever.

“Our research suggests drivers broadly support the principle of ‘the more you drive, the more tax you should pay’, with more than a third (36%) saying a ‘pay per mile’ system would be fairer than the current regime.”

His comments came after the Chancellor announced that from 2025 electric car owners will have to pay vehicle excise duty along with owners of petrol and diesel vehicles.