Chancellor John Healey is under pressure to offer help with fuel costs and energy bills at his first Budget later this month, as the ongoing conflict in Iran pushes up the cost of both.
There is speculation that a 5p fuel duty rise set to come in in the New Year could be delayed, and new financial support for households to take the edge off the increase in the energy price cap in January is expected.
Speaking to journalists at the International Monetary Fund’s annual meetings in Bangkok this week, Healey said he wanted his Budget on 28 October to be one that “gives Britain a bit of breathing space – but also reinforces the strength of our fiscal plans”.
But in an interview with ITV News at the same meeting, he said cost of living support should be “targeted and temporary”, signalling that help is unlikely to be universal.
Fuel and energy prices have climbed sharply since the US-Iran conflict began in late February. According to the RAC, diesel averaged 199.90p a litre on 9 October, around 57p higher than before the war.
Energy help aimed at poorest
Energy bills are set to jump significantly at the start of next year.
The energy price cap – the limit on what suppliers can charge for each unit of energy – rose by 4 per cent to £1,723 a year for a typical household on 1 October.
And the energy consultancy firm Cornwall Insight has forecast it will rise by a further 16 per cent to £1,999 in January, the biggest increase since January 2023.
Burnham did move early in his premiership to offer some relief, cutting VAT on household electricity bills from 5 per cent to zero from 1 October, worth around £45 a year to a typical household.
But the cut only runs until 31 March, and The i Paper revealed on Thursday that Healey is unlikely to recommit to keeping it in place beyond then.
The Government has hinted that more help could be coming, with Energy Secretary Miatta Fahnbulleh telling Energy UK’s annual conference in London last week: “We know we need to do our part to give people a little more breathing space.”
One option reportedly under consideration is boosting the warm home discount, a £150 reduction on bills for around six million households on means-tested benefits, with The Guardian reporting that the Chancellor is considering adding £100 to it.
A Treasury spokesperson told the paper, however, that “decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals”.
But the Resolution Foundation has called on ministers to go further, urging the Chancellor in a report to bring in a temporary scheme for households with an income below £24,000, which it estimated would save eligible families £175 on average at a cost of £2bn.
Jonathan Marshall, principal economist at the think tank, said when it first set out the proposal in August that a targeted discount would reach “more than four-fifths of the poorest families, while expanding support beyond just those on means-tested benefits”.
Pressure on fuel duty
Drivers are also looking to the Budget for relief, with fuel duty – the tax charged on every litre of petrol and diesel – due to rise in the new year.
A temporary 5p-a-litre cut, first introduced in 2022, is set to be phased out under plans drawn up by former chancellor Rachel Reeves, with a 3p rise on 1 January and a further 2p on 1 March.
According to the RAC, households are already paying around £31 more to fill up a family-sized diesel car than before the conflict began, and £23 more for petrol.
Simon Williams, the RAC’s head of policy, has warned that the planned rises “will only make prices at the pump even more expensive”, adding that drivers “will be looking to this month’s Budget for some much-needed relief”.
Andy McDonald, Labour MP for Middlesbrough and Thornaby East, told The i Paper he hoped the Budget would include a fuel duty freeze, alongside further moves to ease energy bills.
“Voters will want to see that sort of cost of living help,” he said. “Anything John can do on fuel duty would be well received.”
But some motoring groups want the Chancellor to go even further, with the AA writing to him last week to urge him to keep the existing cut and reduce duty by another 5p, which it said would take around 6p a litre off pump prices once VAT is included.
“Drivers need the Chancellor to put the brakes on rising fuel costs,” said Edmund King, the AA’s president.
The Road Haulage Association (RHA) has further called for a 15p-a-litre rebate for haulage, coach and van operators, with its managing director Richard Smith warning that “a fuel duty hike is a food price hike”.