Will Rachel Reeves risk wrath of motorists with fuel duty rise in Budget?

Duty on fuel might be about to accelerate. Sean O’Grady looks at why the chancellor is likely to risk the wrath of ‘white van man’ in her Budget

The rate of fuel duty hasn’t gone up much since 2010 (PA)

Recent interviews have seen the prime minister and the chancellor asked repeatedly about how various taxes and duties might be changed in the Budget – and their repeated refusal to “write the Budget in advance”. Formally, we will have to wait until Wednesday 30 October to learn the terrible truth, but that hasn’t stopped the speculation – some inspired, some less so. Fuel duty on petrol and diesel is the latest focus of media attention...

Is fuel duty going to go up?

Almost certainly, and the case for this is strong. The rate of fuel duty hasn’t gone up much since 2010, and was even cut by 5p per litre by Rishi Sunak in his 2022 Budget, to help ease the costs to consumers of the energy crisis. That cut has since been kept in place, despite oil prices having subsided somewhat in the interim. Rachel Reeves could easily justify reversing what was supposed to be a “temporary” measure. That would raise about £2bn – a tidy sum.

She could even go further. Compared with the level prevailing in, say, 2005, fuel duty is much lower in real terms, and could be increased to as much as 80p just to bring it back to where it was 20 years ago. The resulting jump of more than 20p per litre would no doubt bring a backlash, but also some much more meaningful revenue, and the rise could be graduated.

It’s worth reminding ourselves that the old “fuel duty escalator” was introduced by John Major’s Conservative administration in 1993, and pushed duty up by 3 per cent and then 6 per cent a year over inflation throughout the 1990s as part of the drive to reduce pollution and congestion.

The environmental “polluter pays” argument is a powerful one, and the duty tends to hit wealthier people with bigger cars. It would also hasten the switch to battery electric vehicles. If she can withstand the inevitable abuse – which might run to more civil disobedience – Reeves could do well out of simply taking fuel duty back to where it was during the years when Ken Clarke and Norman Lamont held the post of chancellor.

How much is it, anyway?

In real terms, probably as low as it has ever been. After rapid rises in the 1990s, it stood at 52.35p a litre in 2008. In April 2009, it rose again to 54.19p; the Conservative-Lib Dem coalition government increased it to 58.19p in October 2010, and then to 58.95p in January 2011. In April 2011 it was cut to 57.95p, and it remained at this level for 11 years. In March 2022, there was the “temporary” reduction of 5p to 52.95p, where it still stands.

Why has it been frozen for so long?

Pure politics, and a touch of cowardice. The fuel protests in 2000 almost brought the nation to a standstill, and stopped ambulances running. The direct action forced Tony Blair to freeze fuel duties. Since then, every government has been wary of sparking similar wildcat blockades of the oil refineries by the hauliers. That prospect might indeed make Reeves step back from ramping the duty up too steeply. The tabloid press, especially The Sun, has also made fuel duty and the cause of “white van man” into a kind of political fetish. It’s tricky territory.

What does the opposition say?

For most of their period in office, the Conservatives adopted a hyperpolitical approach to fuel duty, protecting it from increasing even in line with prices or wages, in a way that applied to virtually no other tax or levy. It was used as a classic political “dividing line”, and successive Conservative chancellors challenged their shadow counterparts to say whether they’d increase the duty, thus smearing Labour as the enemy of both motorists and owners of small businesses.

Now Reeves may well be laying down the dividing line herself, but this time using it as a way to show how cynical the Tories are, asking them to show where exactly they would find the £2bn or more she hopes to raise.

What else could she do?

As is now well understood, the government won’t break its (limited) promise not to tax “working people”. In the words of the 2024 Labour manifesto, this means: “We will ensure taxes on working people are kept as low as possible. Labour will not increase taxes on working people, which is why we will not increase national insurance, the basic, higher, or additional rates of income tax, or VAT.”

It would perhaps be a bit rude to point out to Reeves that “working people” (including sole traders) often drive cars and vans, and fuel bills amount to a large proportion of their wages.

The Labour pledge, of course, leaves lots of scope to retain, or extend, the Tories’ freeze on income tax thresholds, as well as hikes in council tax, capital gains tax, inheritance tax, stamp duty on properties, duties on alcohol and tobacco (as well as fuel), aviation fuel duty, insurance premium tax, air passenger duty, annual car tax, taxes on dividends, betting duty, plus entirely new taxes and duties. After all, in the past, chancellors have taxed windows, wigs, tea and mobile phones, so you never know what might catch Reeves’s eye.

Will this put the public finances on a sustainable path?

The Office for Budget Responsibility will offer a view on this but it also depends on how fast the economy grows and what Reeves decides to do about public spending – notably welfare reform. In that context, it will be interesting to see if she offers any hope or concessions in respect of the reduction in eligibility for the pensioners’ winter fuel allowance. This was unhappily announced just as Reeves gave a pay rise to the doctors, teachers and train drivers, and the Liberal Democrats have taken it up as a campaigning issue.

With Tory backing and some Labour rebels, not confined to “the usual suspects”, a parliamentary battle awaits us. Fuel duty is (usually) nowhere near as controversial.