Rachel Reeves will freeze fuel duty again this autumn in a boost to families still struggling with the cost of living crisis.
The chancellor feels vindicated by a freeze on the levy last October, despite calls from campaigners and some economists to hike the tax.
As she seeks to fill a multi-billion-pound black hole in the public finances, she has faced fresh calls to end the long-running freeze on fuel duty, which has been in place since 2011.
Maintaining the freeze and keeping in place a 5p cut brought in by Rishi Sunak as chancellor in 2022, is expected to cost around £5bn per year – the same as Labour’s U-turn on planned benefit cuts.
But the i Paper reported that a hike in fuel duty in line with inflation will not form part of Ms Reeves’s autumn Budget as she seeks to balance the books.
Sources told the newspaper the freeze is an example of the Treasury being “front-footed” in tackling the cost of living pressures facing households.
The headline rate on standard petrol and diesel is 52.95 pence per litre, a level which would ordinarily rise in line with inflation. But the repeated freezing of the measure means that, since George Osborne as chancellor first made the move, the rate has fallen by more than a third in real terms.
The Social Market Foundation think tank said freezes and cuts since 2012 will have cost the government more than £200bn in total by 2028, more than the £182bn budget for the NHS in 2022-23.
After Ms Reeves kept the rate of fuel duty flat last October, former Institute for Fiscal Studies director Paul Johnson said: “Almost unbelievably this government has followed the practice of its predecessor in freezing rates of fuel duties and not allowing the ‘temporary’ 5p cut to expire, while raising other taxes dramatically and claiming to be focused on tackling climate change.”
But Ms Reeves said during her Budget speech in October that hiking fuel duty would be the “wrong choice” as she unveiled what she called “very difficult decisions” on tax elsewhere.
Ms Reeves said: “To retain the 5p cut and to freeze fuel duty again would cost over £3bn next year.
“At a time when the fiscal position is so difficult, I have to be frank with the House that this is a substantial commitment to make.
“I have concluded that in these difficult circumstances – while the cost of living remains high and with a backdrop of global uncertainty – increasing fuel duty next year would be the wrong choice for working people.
“It would mean fuel duty rising by 7p per litre. So, I have today decided to freeze fuel duty next year and I will maintain the existing 5p cut for another year, too. There will be no higher taxes at the petrol pumps next year.”
A Treasury spokesperson said: “Our Plan for Change means putting more money in the pockets of working people. We extended the fuel duty cut this year, saving drivers £3bn, and we’re investing £1.6bn this year to end the pothole plague by fixing up to seven million extra potholes.”
