UK Chancellor Not Ruling Out Spring Hike on Fuel Duty

Undated photo showing a person taking a pump at a petrol station. Joe Giddens/PA Media

The UK’s finance minister said no decisions were made on fuel duty after the government’s budget watchdog said a “planned” hike would raise petrol and diesel prices by 12 pence a litre in spring 2023.

Conservative MP Jonathan Gullis told Chancellor of the Exchequer Jeremy Hunt that an increase in fuel duty would be “opposed by a substantial number of Conservative MPs.”

It comes as the Conservative chancellor announced an autumn budget that consists of £55 billion ($65 billion) of tax rises and spending cuts.

In response, Hunt said the Office for Budget Responsibility (OBR) expressed an assumption on the policy and that he will make a decision next spring.

The UK’s Fuel duty has been frozen at 57.95 pence a litre since 2011. In March, then-Chancellor Rishi Sunak reduced the rate by 5 pence for 12 months after fuel prices rocketed with increased demand following the COVID-19 lockdowns and reduced supply after Russia’s invasion of Ukraine.

In the Economic and Fiscal Outlook (pdf) published on Thursday, the OBR listed a “planned 23 per cent increase in the fuel duty rate in late-March 2023” as one of the main adverse economic and fiscal risks, saying the tax hike would be a “record cash increase.”

“It is expected to raise the price of petrol and diesel by around 12 pence a litre” and raise £5.7 billion ($6.8 billion) for the Treasury, the forecast said.

After being criticised for not mentioning the “planned” fuel duty in his autumn budget announcement made on the same day, Hunt told LBC on Friday that the watchdog was “wrong to assume” fuel duty will be increased.

“Because we have not made a decision on that, that it is a decision for the spring budget and we will make that decision at the right time,” the chancellor told the broadcaster.

Chancellor of the Exchequer Jeremy Hunt, leaves Downing Street following the first Cabinet meeting with Rishi Sunak as prime minister, in London on Oct. 26, 2022. Victoria Jones/PA

Writing to Hunt on Thursday, Gullis said a 23 percent increase in fuel duty “would be the death knell to economic recovery and the Conservative Party’s fortunes.”

“It would be opposed by a substantial number of Conservative MPs. It is also factually incorrect with respect to projected tax revenue gains,” he wrote, arguing raising fuel duty would “damage GDP.”

Hunt wrote back to Gullis on Friday saying the OBR’s calculation was based on “their assumption” that the 5 pence fuel duty cut would end in March 2023 and their “long-standing assumption” that the tax rises by the rate of inflation.

“I want to clarify and confirm that no changes or decisions were made to fuel duty rates at this Autumn Statement,” Hunt wrote.

“The OBR simply expressed an assumption, as they have done over many years. I will consider future rates at the Spring Budget.”

According to RAC Fuel Watch’s figure on Thursday, 49 percent of the price of petrol consisted of fuel duty and VAT, while taxes constituted 45 percent of the price of diesel.