A planned increase in fuel duty has been scrapped, offering relief to motorists grappling with rising pump prices due to the war in Iran.
Prime Minister Sir Keir Starmer announced the 5p per litre fuel duty cut, first introduced by the Conservative government in March 2022, will be extended for the remainder of the year.
This means the rate will hold at nearly 53p per litre, overriding previous plans for a 1p per litre increase on 1 September, followed by two 2p per litre rises in December and next March.
Iran’s restrictions on tankers in the Strait of Hormuz have driven up costs, with average UK forecourt prices for petrol and diesel now 26p and 44p per litre more expensive respectively than before the conflict began on 28 February.
Sir Keir told MPs: "Families across the United Kingdom are facing impacts of a war that we did not choose."
He added: “This is not our war, but while the parties opposite wanted to jump into it, Labour will always protect working people.”
Steve Gooding, director of motoring research charity the RAC Foundation, said: “Although today’s news on fuel duty won’t have the immediate effect of bringing forecourt prices down, at least it shows that ministers have registered the financial pain caused by rampant pump prices for individuals and for business.
“Since the start of the Iran conflict, drivers have already paid a war premium of a staggering £3 billion in inflated fuel prices, half-a-billion of which has gone to the Exchequer in VAT receipts.”
Jack Cousens, head of roads policy at the AA, said the announcement “gives an opportunity for the Government’s Fuel Finder scheme to show its value, by showing drivers where to find the best prices”.
He added that the Treasury has “already benefited from high pump prices” through extra VAT receipts.
Sir Keir also announced that hauliers would benefit from a “12-month road tax holiday”.
The Treasury said they would pay £1 at their annual renewal, saving £600 for a typical heavy lorry and £912 for the biggest vehicles on the road.
Richard Smith, managing director of the Road Haulage Association, said: “We are encouraged that the Government is listening to industry concerns, and addressing cost pressures through measures they’ve announced today. But they should go much further.”
He added: “The Government’s action will have limited impact with many haulage, coach and van operators already on the brink.”
The RAC said on Tuesday that the average price of a litre of petrol at UK forecourts was 158.5p, which was the most expensive level since December 2022.
It warned that wholesale costs mean pump prices are likely to reach at least 160p per litre in the coming weeks.
Farmer, rail freight and other users of red diesel will see their fuel duty cut as part of an effort to reduce costs of goods.
The rate will be cut from 10.18p to 6.48p per litre from June 15 until the end of the year.
Downing Street indicated the package of measures will cost £455 million.
“The package will be scored at the Budget by the independent Office for Budget Responsibility,” the Prime Minister’s official spokesman told reporters.
“The Government estimates this will cost £455 million in 26-27.”
He said it was thanks to the UK’s “strong economic growth” that the Government could introduce measures to ease cost-of-living pressures.
“Given the current impact of the conflict, it is right to extend the 5p cut to the end of this year,” the spokesman said.
It is not yet clear the 5p freeze will be extended beyond the end of 2026, meaning motorists could be hit in the new year.
Chancellor Rachel Reeves is expected to set out future plans for fuel duty in the budget in the autumn.
