Rachel Reeves could U-turn on a plan to hike fuel duty in September to cushion the cost-of-living blow from war in the Middle East.
No 10 said that the Chancellor was keeping “all taxes under review” after the fallout from America and Israel’s attack on Iran drove the cost of oil above $100 a barrel for the first time since 2022.
It follows warnings that petrol could hit 150p a litre because of the spiralling conflict.
Iran has responded to the US and Israeli offensive by firing drones and missiles at American allies across the region and attacking ships in the Strait of Hormuz, effectively closing the shipping route through which about a fifth of the world’s oil supply normally flows.
The spike in oil and gas prices has raised fears that the conflict could reignite inflation and wreck the UK’s already fragile economic growth.
Reeves took part in an emergency meeting of G7 finance ministers on Monday afternoon which discussed the idea of a coordinated release of oil reserves to try to push down prices, although no agreement has yet been reached.
But the RAC has warned that unleaded petrol is still likely to hit 140p a litre in the next week or so, compared to 132p before the crisis.
Simon Williams, head of policy at the RAC, said: “Average petrol and diesel prices have rocketed in the last week and are unfortunately likely to keep on rising, so the situation for UK drivers is looking increasingly bleak. Petrol is up 5p to 137.5p and diesel up 9p to 151p a litre since the current crisis began on Saturday 28 February.
He went on: “Unleaded is almost certainly going to reach an average of 140p in the next week or so, while diesel looks highly likely to climb to at least 160p a litre. The price of diesel is increasing more quickly now than at any point since the start of the Ukraine conflict. With oil at a sustained $100, petrol could rise towards 150p a litre – a price not seen since June 2024. Diesel could reach almost 180p, which would be a three-year high.”
The energy price shock could force Reeves to abandon a planned increase in fuel duty this autumn.
Fuel duty has been frozen since April 2010, and in November’s Budget the Chancellor extended a 5p “temporary” cut in the duty from April until September. After this, it is due to be unwound through a staggered series of increases.
Prices at motorway services are usually more expensive than at regular petrol stations, but those at Winchester Services on the M3 have surpassed £1.70 a litre (Photo by Finnbarr Webster/Getty Images)But on Monday, the Prime Minister’s Official Spokesman left the door open to extending the fuel duty cut beyond September.
He said: “We’re obviously closely monitoring prices in light of the situation in the Middle East. I know there’s been reporting around fuel duty…the Chancellor keeps all taxes under review and takes decisions at the budget.”
The Conservatives have promised to bring a Commons vote on reversing the planned increase.
On a visit to Bromley on Monday, the Tory leader Kemi Badenoch said that Sir Keir Starmer should “stop Rachel Reeves’ silly changes to fuel duty”.
“I’m going to be bringing a vote so that we can make sure that we keep fuel duty low and I would expect Labour MPs and others to support that at a time when we’re expecting serious shocks to energy prices,” she said.
While industry representatives have said that fuel production and imports are continuing as usual, with no issues being reported, the AA has advised drivers to consider cutting out “non-essential journeys” to save money.
While home energy bills will not increase until July because of Ofgem’s price cap, if gas prices remain elevated, the Government will come under pressure to launch a support package similar to the one introduced by Liz Truss after Russia invaded Ukraine.
Asked on Monday whether there was any contingency planning for such an intervention, the Prime Minister’s Spokesman said: “We’re monitoring the situation closely, and as the Chancellor said at her spring statement, we’ll prioritise families and businesses, whatever turbulence we see around the world.
“The cost of living remains the Prime Minister’s priority at home, and the action to take £117 off bills is locked in for three months starting in April.”
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The Prime Minister has insisted the economy is well placed to weather the economic fallout of the war.
On a visit to a community centre in London, Starmer said: “The longer this goes on, the more likely the potential for an impact on our economy, impact on the lives and households of everybody and every business.
“And our job is to get ahead of that, to look around the corner, assess the risk, monitor the risks, and work with others in relation to that.”
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