As the UK awaits the Labour Party’s first government budget in more than a decade, millions of households are braced for reported tax rises.
Chancellor Rachel Reeves is reportedly looking to announce up to £40bn of tax rises and spending cuts on 30 October.
Fuel duty, which has been held steady and even cut by successive Conservative administrations since 2010, is expected to be in her sights when she presents her spending plans to parliament.
Here, Yahoo News UK looks at what the UK’s current fuel tax regime is and how it could change.
What is fuel duty?
Fuel duty is the charge set on fuels such as petrol, diesel and gas used to power cars, heating systems and other equipment or machinery.
The levies are a major source of revenue for the government and in the 2023/24 financial year alone were expected to raise almost £25bn – equivalent to more than 2% of all UK tax received by the Treasury.
Consumers are currently expected to pay:
52.95p per litre of petrol, diesel, biodiesel and bioethanol
28.88p per kg of liquefied petroleum gas (LPG)
22.57p per kg of of natural gas used as fuel in vehicles, such as biogas
9.78p per litre of ‘fuel oil’ burned in a furnace or for heating
The standard 20% VAT rate is also levied on most fuel purchases, although domestic heating fuel is charged at 5%.
Between 2011-2022 the rate for petrol and diesel was frozen at 57.95p per litre, before the Conservatives implemented their flagship 5p cut.
Despite inflation and other pressures, the current tax regime has kept prices relatively low for British motorists, with petrol station prices falling to their lowest in three years last month.
How high is the UK’s fuel duty?
Drivers of petrol cars get a relatively good deal in Britain, compared to our nearest neighbours in western Europe.
While the UK currently has the ninth highest rate of fuel duty, before VAT is factored in, it is still cheaper than nations such as France, Germany and the Republic of Ireland.
British drivers also get the tenth best price for petrol, according to the RAC, at 135p per litre – 10p cheaper than France and significantly behind Denmark, whose motorists pay the most at 161p.
Bulgarians get the cheapest petrol in Europe, shelling out just 105p per litre thanks to a combination of one of the lowest fuel duty and VAT rates on the continent.
It is a different story for diesel however, with the UK charging the highest rate of duty in Europe for the fuel.
At an average price of 139p per litre, is it also the second highest at-the-pump price, dwarfed only by Finland, where drivers pay 147p, thanks largely to high VAT charges.
Will it go up in the budget?
Fuel duty would be an easy target for increases in the budget.
The government is reportedly looking to raise an extra £40bn to shore up and increase investment in public services. Reeves is reported to have told ministers in a cabinet meeting on Tuesday of plans to fill the “£22bn black hole” inherited by the previous government – a claim often repeated by Reeves but disputed in part by economic experts at the Institute for Fiscal Studies.
Prime minister Keir Starmer has previously warned of a “really painful budget” coming for Britons and has refused to rule out hikes to fuel duty when questioned about in on 29 August.
The Institute for Fiscal Studies has said the chancellor will need to raise taxes to record levels to meet the government’s policy goals, especially as increasing take-up of electric vehicles eats into its tax take from fuel duty.
Taking questions in the House of Commons earlier this month, energy secretary Ed Miliband refused to be drawn the future of fuel taxes, but he did commit to a consultation on a new PumpWatch scheme designed to make it easier for drivers to shop around for the cheapest petrol and diesel.
Even if the levies on fuel for cars were to remain untouched, campaigners have urged ministers to consider new charges on aviation fuel, claiming a jet fuel tax could raise £6bn a year.
What do campaigners say?
The Road Haulage Association, which represents the interests of British lorry drivers, has warned of “dangerous consequences” for small firms if the government ends the 14-year freeze on fuel duty rates.
On the other side of the debate, organisations such as the Social Market Foundation charity has said the ongoing freeze has cost the Treasury £20bn since it was introduced and done little to help the county’s poorest families, while disproportionately benefitting the wealthiest.
Some, however, have argued the UK needs to transition away from charges on fuel purchases altogether if government income is to be maintained while traditional vehicles are phased out in favour of electric-powered alternatives.
Sir John Armitt, the chairman of the National Infrastructure Commission (NIC), has said it is time for a “proper public debate” on whether to replace the current system, which almost completely omits electric vehicles, with a roads pricing system.
