The temporary fuel duty cut could be extended beyond the end of March, according to Whitehall rumours.
Chancellor Jeremy Hunt will announce his first Budget later today, including his plans for the levy on petrol and diesel. It was expected that he would confirm an end to the 5p per litre reduction introduced in last year’s Budget but leaked details of his statement hint that the temporary reduction could be extended.
Any such move would be a relief to drivers facing high costs to keep their car running and would be welcomed by motoring groups which have urged Hunt not to pile added pressure on motorists.
Ahead of the Budget, the RAC warned that allowing the tax to revert to its previous level or even increase would be “punishing” for households already struggling with the cost-of-living crisis. It said that fuel prices would rise beyond where they were when the cut was implemented 12 months ago.
During his time as Chancellor, Prime Minister Rishi Sunak temporarily cut the fuel duty rate from 57.95p per litre to 52.95p. At the time fuel prices were rising on an almost daily basis and Sunak said the move was designed to ease pressure on drivers.
The reduction is due to come to an end on 23 March 2023, instantly adding 5p per litre to the price of petrol and diesel. The Office for Budget Responsibility also sparked concerns in late 2022 by forecasting that fuel duty could rise by up to 12p per litre if the scheduled inflation-linked increase goes ahead.
According to the RAC, if the duty cut is removed as planned, petrol prices will rise to 153.72p and diesel to 173.19p when factoring in VAT. A year ago, before the duty cut was announced, petrol cost 151.16p per litre and diesel cost 154.75p.
RAC fuel spokesman Simon Williams said: “All eyes are now on what the Chancellor decides to do with fuel duty at the Budget. While we accept the 5p cut introduced last year can’t last forever, with household finances under even more pressure this spring than they were a year ago, we don’t think now is the time to be removing it.
“To decide to raise prices by 5p would prove punishing to households and businesses struggling to make ends meet, and may have a detrimental effect on both inflation and the wider economy. We also hope Mr Hunt isn’t about to become the first Chancellor in 12 years not to cancel the annual planned fuel duty rise. If he were to go ahead with it, untold damage could be caused.”
Despite the fuel duty cut last March petrol prices continued to spiral until mid-2022 before falling back slightly. The cost of petrol and diesel fell for the fourth consecutive month in February - by 1p and 3p respectively - but the RAC claims that diesel drivers are still overpaying as filling stations subsidise lower petrol prices with higher diesel ones.
Wholesale prices for petrol is just 6p cheaper than for diesel but drivers are paying an average of 20p per litre more for diesel. Williams said: “A reduction in pump prices would normally be extremely welcome news but while our analysis shows drivers of petrol cars are paying a fair price at the pumps, the same sadly can’t be said for anyone whose vehicle runs on diesel.
“Retailers really ought to demonstrate they’re on the side of drivers by cutting their diesel prices now – not least as the wholesale price is on a par with where it was 12 months ago.”