Rachel Reeves is planning to cancel a rise in fuel duty this week when she unveils a package of measures to reduce the cost of living.
The chancellor will announce she will not put up the tax by 1p as was due to happen in September, government sources said, and she could cancel all of a 5p rise that is due to happen in stages over the subsequent six months.
The move is part of a wider plan to mitigate a rise in inflation caused by the war in Iran. Reeves is expected to announce the plan to the Commons on Thursday.
The prime minister’s spokesperson declined to comment on the plans, which were first reported by the Sun on Sunday. However, he said: “The government is determined to keep costs down for motorists paying more because of the war in Iran. That’s why we’ve extended the 5p fuel duty cut twice, until September. While the chancellor will continue to monitor the situation, as the chancellor has set out, a rapid de-escalation in the Middle East remains the best way to keep pump prices low.”
The Treasury declined to comment.
Reeves announced at the last budget that she would freeze fuel duty for nine months but that she would end a temporary 5p cut – first announced by Rishi Sunak in 2022 in the wake of Russia’s invasion of Ukraine – beginning this September.
In recent months, she has come under pressure to extend the 5p temporary cut, at an estimated cost to the government of £2.4bn a year. Last month Richard Walker, the executive chair of the supermarket chain Iceland and the government’s cost of living champion, said on BBC Radio 4’s Today programme: “The 5p fuel duty cut that you allude to is an interesting one. That’s going to expire in September. I think, given where we are, we do need to be thinking and talking about extending it or enlarging it.”
Reeves has been looking at a range of other options to keep prices low over recent weeks, including freezing private sector rents and subsidising some people’s energy bills. However, officials say a rent freeze has been ruled out, while Reeves is expected to wait until later in the year to announce an energy bill relief package, given that the level of the price cap has been fixed until the end of June.
Government sources say that because energy usage is much lower in the winter, the chancellor wants to wait until later in the year before deciding how much to spend on subsidising bills. She has already allocated £50m to subsidise the cost of heating oil for families who use it to heat their homes, many of them in rural areas, especially in Northern Ireland.
Reeves will make her announcement at a time of huge uncertainty for the government, with the Greater Manchester mayor, Andy Burnham, seeking to fight the Makerfield byelection on a promise to challenge Keir Starmer for the Labour leadership.
Burnham has put affordability at the centre of his prospective offer to Makerfield voters, telling an event in Manchester on Monday: “Forty years of neoliberalism … created an economy that didn’t work for most working people. It led to people paying over the odds for the daily basics – energy, housing, water, transport.”
