UK motorists are being warned to brace for a substantial increase in fuel costs next month, with the RAC forecasting a potential rise of up to 18p per litre. This significant jump, if it materialises, would be driven by the scheduled expiration of the current 5p fuel duty cut and the subsequent increase in Value Added Tax (VAT) on the higher price.
The 5p per litre reduction in fuel duty was initially introduced by the then Chancellor of the Exchequer, Rishi Sunak, in March 2022 as part of measures to alleviate the cost of living crisis. This temporary cut, which also included a freeze on fuel duty for the 2022-23 financial year, is set to conclude on 23rd March. If the government allows it to expire without an extension, drivers will face the immediate reinstatement of the 5p duty, alongside an additional 3p per litre increase due to VAT being applied to the higher overall price.
Such an increase would push the average price of a litre of petrol to approximately 155p, with diesel potentially reaching around 160p per litre. These figures would represent the highest pump prices seen in the UK since late 2022, placing renewed financial pressure on households and businesses reliant on road transport. For the average family car with a 55-litre tank, this could mean an additional cost of nearly £10 to fill up.
The Treasury has yet to confirm its intentions regarding the fuel duty cut ahead of the Spring Budget, expected to be delivered by the current Chancellor, Jeremy Hunt. The decision will be closely watched by consumer groups and motoring organisations, who have consistently advocated for measures to keep fuel costs affordable. The opposition Labour Party has previously called for a more comprehensive approach to tackling the cost of living, though they have not explicitly committed to extending the fuel duty cut.
Beyond the direct impact on drivers, a significant rise in fuel prices could have broader economic implications. Increased transport costs for businesses, particularly those in logistics and retail, could lead to higher prices for goods and services, potentially fuelling inflation. This scenario would further complicate the Bank of England's efforts to bring inflation back to its 2% target.
The government faces a delicate balancing act between supporting household finances and managing public spending. While extending the fuel duty cut would offer relief to motorists, it would also represent a substantial cost to the Treasury at a time when public finances remain under scrutiny.
Source: RAC