Fuel duty could be next tax grab for Labour

petrol pump
petrol pump

Sir Keir Starmer has opened the door to a rise in fuel duty in this autumn’s Budget.

Despite his pledge not to increase taxes on working people, the Prime Minister suggested an increase in the levy, paid by millions of motorists, was on the table.

That would reverse a 14-year period under the Conservatives with no fuel duty increases.

Fuel duty now stands at 52.95p a litre after a temporary reduction of 5p brought in by Rishi Sunak when he was chancellor in the wake of the war in Ukraine.

This temporary reduction has been extended in subsequent Tory budgets but could be vulnerable to the new Chancellor’s need to raise money.

An increase of 5p in fuel duty would raise more than £2 billion for Treasury coffers and would go some way to fill the £22 billion black hole identified by Rachel Reeves.

It comes amid speculation that Labour will also launch a capital gains and inheritance tax raid at the Budget after Ms Reeves refused to rule the measures out.

Sir Keir refused to rule out a rise when asked about the policy during a visit to Berlin, where he met Olaf Scholz, the German chancellor, to discuss a new treaty.

Asked if he acknowledged that a rise in fuel duty would be a tax on working people, and whether he would rule it out, he told reporters: “Well, look, firstly, we made very clear pledges before the election in relation to tax on working people.

“You’ve all heard it a number of times over in relation to income tax, VAT and national insurance. We absolutely stick by that. Beyond that, I’m not going to speculate about the Budget. We’re going to have a lot of these sessions between now and October 30.”

On Wednesday night, the Tories accused Sir Keir and Labour of “paying off their friends in the unions” by putting up taxes on motorists while giving huge pay increases to train drivers and junior doctors.

Helen Whately, the shadow transport secretary, said: “When in government, we backed motorists by freezing fuel duty for 14 years in a row.

“But if Labour now chooses to hike fuel duty, despite inheriting a growing economy, just so they can pay off their friends in the unions, then they are choosing to put politics before the public interest.

“Keir Starmer doesn’t have to hike duty, but if he chooses to do it, then he chooses to hammer people for going to work, doing the school run, and picking up a loved one from the hospital.”

Edmund King, president of the AA, said: “The car is the main form of transport for the majority of passenger journeys and almost all deliveries to shops and homes are by road.

“Any hike in fuel duty could backfire by fuelling inflation and hitting those in rural areas who have no alternative to the car, disabled drivers, and low-income shift workers. High pump prices mean the Government benefits from increased VAT income as well as fuel duty.”

The Government is facing increased scrutiny over its tax and spending plans after Sir Keir asked the country to “accept short-term pain for long-term good”, warning “things are worse than we ever imagined”.

The rhetoric will be seen as an attempt to paint a gloomy picture ahead of the Budget on Oct 30 so its harshest measures do not seem as painful as feared when it is finally revealed.

Sir Keir has promised not to raise taxes on “working people”, specifically income tax, national insurance and VAT.

But his definition of what constitutes a working person, and therefore what they might be expected to pay in tax, remains vague, leading to questions about which other levies he could raise.

Not just ‘tax and spend’

Speaking in Berlin he said: “My absolute determination is to have economic growth. And I do not think that the only levers that a government can pull, particularly a Labour government, are simply tax and spend.

“I think we’ve got to focus on growth, which is why we’ve taken those key decisions already in relation to the National Wealth Fund, GB Energy, what we’re doing on planning, because they are the things that are going to unlock growth.”

Howard Cox, the founder of FairFuelUK, accused Labour of preparing to “fleece” millions of drivers across the country.

“No surprises that Labour are not denying hiking fuel duty in the coming Budget,” he said.

“I have seen credible indications that it is about to rocket by 10p per litre. This new Government is set to not only fleece the UK’s 37 million drivers, they will introduce a shed-load of anti-motorist policies that follow Sadiq Khan’s punitive campaigns against the easiest of cash cows.”

Jeremy Hunt, the former chancellor, froze the levy on petrol for the 14th consecutive year in his spring Budget.

He also extended the 5p-a-litre cut introduced by Mr Sunak in March 2022 for another 12 months.

Sir Keir refused to rule out unfreezing the duty during the election campaign. When quizzed on the subject in June, he told GB News: “I’ll be very straight with you, I’m not going to write five years’ worth of Budget two or three weeks before the election.”

Pandemic and war take toll

It comes as the pandemic and Russia’s war on Ukraine have pushed petrol prices up to unprecedented levels.

Since the late summer of 2021, the average pump price of petrol has exceeded the pre-pandemic record of 142.48p a litre almost every month, according to the AA.

On Wednesday, Ms Reeves also refused three times to rule out raising inheritance tax and capital gains tax in her first Budget.

Inheritance tax is a 40 per cent levy applied after a person dies to estates worth more than £325,000. Capital gains tax applies to the sale of assets worth more than £3,000.

Asked whether she could rule out raising the two levies in the Budget, Ms Reeves told Sky News: “I’m not going to write a Budget two months ahead of delivering it. We’re going to have to make difficult decisions in a range of areas.”

Asked again whether she could rule out increasing either tax, she replied: “On spending, on welfare and tax, we’re going to have to make a series of decisions. But I’ll set out that detail in the right and proper way on October 30 at that Budget.”

The Treasury would also not rule out a wealth tax – a key demand of the Unite union.

A Treasury spokesman told The Telegraph: “Following the spending audit, the Chancellor has been clear that difficult decisions lie ahead on spending, welfare and tax to fix the foundations of our economy and address the £22 billion hole in the public finances left by the last government.”

After his warnings on Tuesday that the upcoming Budget would be painful, Sir Keir said he wanted to “inject some hope” into the gloomy narrative that has become a theme of his early premiership.

He said it was “tough” to tell the nation that “things are going to get worse before they get better”.

Asked if he could guarantee things will get better by the end of this Parliament, he told reporters: “Yes, and let me inject some hope, because the whole point of this exercise is to make sure we can bring about the change that we need.

“If you don’t clear out the rot and don’t do it properly, you’ve got nothing to build on, and therefore this is a vital step.”

He added: “If you’re redecorating your house and you want it to look much nicer, it’s usually better if you strip it down, get rid of the damp and the cracks first, rather than painting it in five minutes, thinking it looks much better, and by Christmas, the cracks and the damp come back.

“So this is actually a project of hope, but it’s got to start with the hard yards of doing the difficult stuff, of clearing out the rot first.”