Rachel Reeves set to rake in £1billion extra a year in VAT from drivers thanks to soaring price of petrol
Rachel Reeves collects as much as £1bn a year in extra tax from drivers due to rising pump prices, analysis suggests.
The research found that if average pump prices remained at current levels, the Chancellor would earn around £20 million a month in extra VAT on petrol sales.
For diesel, Iran will receive up to an extra £71 million at current prices compared to before the start of the war.
The analysis was based on HMRC data showing the UK consumes 1.55 billion liters of petrol and 2.4 billion liters of diesel a month.
Figures from the RAC show average petrol pump prices have risen by more than 7 per cent since the war began on February 28.
This means the Treasury will net around 1.5 pa per liter of VAT, or around £22.6 million per month.
And diesel has risen by more than 15p per liter, earning the Chancellor an extra 3p per liter in VAT, or up to £76 million a month. Within a year this figure will total £1.1bn.
Campaigners said it showed Ms Reeves could save motorists from further hassle at the pumps and at least delay the hated fuel price hike, which is set to kick in from this September.
Amid rising pump prices sparked by the war in Iran, Chancellor Rachel Reeves has faced calls to avoid further hassle at the pumps by rescinding a fuel tax hike (file photo)
John O’Connell, chief executive of the Taxpayers’ Alliance, said the announcement of the unexpected VAT size expected by the Chancellor would ‘turn the corner’ on motorists.
In an environment where the economy will be seriously damaged by the crisis in the Middle East, it is unacceptable that the biggest winner is the Treasury.
‘Reeves needs to give taxpayers a break and maintain the current fuel tax rate beyond September.
‘Ideally it would go further and temporarily stop charging VAT on top of the fuel duty, charging it solely on the price of fuel to stop the duty on top of the tax.’
Howard Cox, founder of campaign group FairFuelUK, said: ‘The government’s traditional cash cow continues to be subjected to a VAT deluge like an unstoppable tsunami – and all because of skyrocketing pump prices.
‘Fossil fuel road users want Chancellor to scrap any plans Budget Fuel Tax Increase.’
AA chairman Edmund King said: ‘The increase in pump prices has created an unexpected VAT increase for the Treasury. ‘We demand that the removal of the 5p fuel tax deduction be postponed for at least six months.’
The Chancellor said earlier this week that he would be ‘reluctant’ to cancel a 5p per liter fuel duty increase despite the extra VAT he expects, which would add more than £3 to the cost of refueling.
But he and Sir Keir Starmer left the door open for a U-turn, saying the policy was ‘under review’ and suggested it could be scrapped if the conflict in Iran continues and pump prices continue to soar.
During heated Prime Minister’s Questions this week, Conservative Party leader Kemi Badenoch repeatedly called on Labor to scrap the pay rises and accused Sir Keir and Ms Reeves of treating drivers like ‘cash cows’.
The Conservative Party has repeatedly called on Labor to cancel the rises, while Reform UK has promised to reverse the rises if it wins the next election.
RAC figures last night showed average petrol pump prices have risen by 7.32 pa a liter to 140.15 pa a liter since the start of the Iran conflict. Diesel rose 15.85p to 158.23p per litre.
A Treasury spokesman said: ‘We have a sound economic plan – we’ve extended the 5p fuel duty cut from this month until the end of August to support drivers.’
