What is the current dispute over fuel duty?
Industry leaders have written privately to Chancellor John Healey urging him to abandon a planned fuel duty increase, warning that pump prices are climbing sharply and may remain elevated for months as conflict in the Middle East continues to disrupt global oil markets. The letter reflects mounting pressure on a government that has already shown signs of wavering on a policy it once considered settled.
Fuel duty has been frozen as a cost-of-living measure, but that freeze is scheduled to expire in the autumn. Chancellor Rachel Reeves had previously insisted the planned 5p-per-litre rise would proceed in September. Ministers have since softened that position, with the government stating the increase would be “kept under review” — a formulation that, in Whitehall’s careful language, signals genuine uncertainty rather than mere caution.
Energy Secretary Ed Miliband has gone further still, suggesting the government is actively considering scrapping the hike and pledging to “stand by people in this crisis.” That is a notable shift in tone from a Treasury that only months ago treated the rise as fiscally non-negotiable.
Why are pump prices rising so sharply?
The immediate cause is geopolitical. Attacks in the Strait of Hormuz — through which a significant share of global oil tanker traffic passes — have disrupted supply chains and rattled commodity markets. The price of crude oil has risen above $100 a barrel, with some analysts warning that further escalation could push it higher still.
According to the RAC, petrol prices have already reached 160p per litre, a level not seen since Russia’s invasion of Ukraine in 2022. Diesel prices have risen by nearly 9 per cent since late February, while petrol is up roughly 6 per cent over the same period. These are not marginal movements.
The knock-on effects extend well beyond the forecourt. Higher fuel costs feed directly into transport logistics and agricultural fertiliser prices, both of which ultimately bear on what consumers pay in supermarkets. The inflationary transmission mechanism here is well understood, and it operates quickly.
How are markets pricing in the conflict?
AA president Edmund King has observed that much of the recent oil price increase reflects forward-looking market behaviour — traders pricing in anticipated disruption rather than simply responding to supply already lost. This dynamic matters for policy, because it means prices can move sharply before any physical shortage materialises.
King predicted that petrol prices could revert towards levels seen at the start of 2026, when a litre averaged 135.7p, compared with a low of 131.9p the previous month — though that projection now looks optimistic given the pace of the current rise. The direction of travel depends heavily on whether the conflict broadens or stabilises, neither of which any government can control.
What are the fiscal and political trade-offs?
The government faces a genuine dilemma. Abandoning the fuel duty rise would cost the Treasury revenue it has already pencilled into its fiscal plans, at a moment when the public finances offer little margin for error. Proceeding with it, however, risks compounding an energy price shock that is already squeezing households and businesses.
The case for scrapping the rise rests on several concrete considerations:
The counter-argument is straightforward: fiscal credibility depends on following through on stated plans, and a pattern of retreating from revenue measures when they become politically inconvenient erodes the predictability that markets and businesses rely upon.
What should a rational policy response look like?
The strongest case for a temporary suspension of the duty rise is not political but empirical: the shock is externally driven, time-limited in character, and concentrated in sectors with limited capacity to absorb costs quickly. Those are precisely the conditions under which a short-term fiscal concession is most defensible, provided it is explicitly framed as contingent on market conditions rather than as a permanent retreat.
What would be less defensible is a decision made under political pressure without a clear framework for when the duty rise would be reinstated. The government’s current language — “kept under review,” “intervene if necessary” — is reassuring as a signal of flexibility but risks becoming a formula for indefinite deferral.
The Treasury would be well advised to set explicit trigger conditions: a named oil price threshold, a specified pump price level, or a defined review date. That approach preserves fiscal discipline while allowing a sensible, market-responsive adjustment. It is, in short, the kind of policy that earns credibility rather than spends it.