Chancellor set to raise fuel duty by 7p a litre after a 14-year freeze – adding £3.85 to the cost of filling an average family car

Fuel duty is set to rise by up to 7p a litre as Rachel Reeves scrambles for cash in this month’s Budget.

Whitehall sources say the Chancellor will not renew a ‘temporary’ 5p cut in fuel duty, which is due to end in March next year.

She is also considering restoring the annual fuel duty rise after Treasury officials warned her that she has a ‘now or never’ opportunity to end a freeze that has lasted for 14 years.

This would add another 1p or 2p to the duty levied at the pumps, with VAT adding another penny to the price paid by motorists.

A 7p rise in fuel duty would add £3.85 to the cost of filling up an average family car – undermining Labour’s claim that it will not impose higher taxes on working people.

Successive Conservative chancellors blocked a planned inflation-level fuel increase following pressure from MPs, but Ms Reeves is considering restoring the rise (file photo)

But ministers believe that, with pump prices at their lowest since Russia’s invasion of Ukraine, they can justify a fresh tax raid. Fuel duty is currently 52.95p per litre.

Insiders say the Treasury has modelled raising fuel duty by as much as 15p a litre. However, Ms Reeves is expected to back away from an increase on this scale amid fears of a backlash from motorists and business.

The Treasury pencils in an inflation-level rise in fuel duty each year. But protests by Tory MPs saw successive Conservative chancellors block it every year.

A Whitehall source said: ‘Ms Reeves’ officials are telling her it’s now or never on fuel duty. The Treasury always hated the fuel duty freeze and is determined to get rid of it.

‘They are advising her that motorists can afford it and that if she doesn’t act to end the freeze now she will find it much harder to do so later in the parliament.’

Economist Adam Corlett, from the Resolution Foundation think-tank, said: ‘Fuel duty is set to rise by around 6p a litre next spring due to inflation and a temporary cut expiring.

‘Cancelling this and future annual increases would cost £5billion a year by the end of the parliament – money the Chancellor simply doesn’t have as she tries to plug a £40billion funding hole for our schools, hospitals and other public services.’ Howard Cox, of campaign group FairFuel UK, said: ‘UK’s 37million drivers are set to be punished hard.’

Although the Treasury has modelled a 15p increase in fuel duty, Ms Reeves is set to back a less stark rise (file photo)

A Treasury spokesman said: ‘We do not comment on speculation around tax changes outside of fiscal events.’

Meanwhile, in the Lords, government minister Baroness Blake ducked questions about whether the Treasury is drawing up plans to introduce road pricing to fill a projected shortfall in revenue as people switch to electric vehicles.

Tory peers warned that any move to introduce per-mile pricing would slow the take-up of electric vehicles.

She said: ‘I cannot comment on any matter that might be raised in the Budget.’