We store cookies on your device to make sure we give you the best experience on this website. I'm fine with this - Turn cookies off
Switch to an accessible version of this website which is easier to read. (requires cookies)

Rishi Sunak set for £5bn VAT windfall from fuel price rises as motorists treated “as cash cows”

March 23, 2022 7:30 AM

The Treasury could cash in on up to £5 billion extra in VAT if fuel prices continue to climb, analysis by the Liberal Democrats has revealed.

This would be double the estimated £2.5 billion cost of cutting fuel duty by 5p, as Rishi Sunak is expected to do tomorrow.

The cost of fuel has surged by 30p per litre in the wake of Putin's invasion of Ukraine. The Liberal Democrat analysis shows that if fuel prices continue to climb as expected, with both petrol and diesel hitting more than £2 a litre, this Treasury windfall could climb to almost £5 billion.

The research is based on figures from the RAC Foundation showing British motorists used 16.9 billion litres of petrol and 30 billion litres of diesel in 2019. It also uses projections from the Fuel Prediction website, which predicts that in 10 weeks the price of petrol will reach £2 a litre and diesel £2.16 a litre.

The Liberal Democrats have warned the Chancellor is using motorists as "cash cows" and is giving with one hand while taking with the other. The party is urging Rishi Sunak to use tomorrow's Spring Statement to slash VAT to 17.5%, a move that would save families an average of £600 each a year. This would be far more than the estimated savings of £2 per tank of petrol for the average car from cutting fuel duty by 5p, or £48 for a family that fills their car twice a month.

The Liberal Democrats have also called on Rishi Sunak to drop the National Insurance tax rise and the freezing of income tax thresholds that will cost families an average of £600 a year.

Liberal Democrat Treasury Spokesperson Christine Jardine MP said:

"Rishi Sunak is treating motorists like cash cows. The Treasury could end up cashing in to the tune of £5 billion from these eye-watering fuel price hikes, while hammering families with an unfair tax rise. It is giving with one hand and taking with the other.

"Rather than squirrelling this windfall away, the Chancellor should use it to help families on the brink.

"Cutting fuel duty alone is not enough, it would only save drivers about £50 a year.

"Rishi Sunak should instead scrap his unfair tax hikes and slash VAT across the board, putting over £1,000 in the pockets of every family."


Notes to Editor:

The full Liberal Democrat analysis can be found here.

  • Using petrol and diesel prices from the 1st January 2022, the Treasury was set to make £11.5 billion in VAT this year from people filling up their vehicles.
  • At current prices of £1.67 a litre for petrol and £1.79 for diesel, the Treasury is set to make £13.6 billion in VAT on petrol and diesel, so an extra windfall of £2.1 billion.
  • Fuel Prediction has forecast that petrol could reach £2 a litre and diesel £2.16 a litre in 10 weeks or the end of May. Using these figures, the Liberal Democrats have forecast the Treasury would cash in a total of £16.4 billion in VAT. The difference between this and the price of petrol and diesel on 1st January is £4.9 billion or almost £5 billion.

The Resolution Foundation think tank has estimated the 5p cut would cost the Treasury around £2.5 billion a year.

Gordon Balmer, executive director of the Petrol Retailers Association, has also recently warned petrol prices could go up to £2 a litre.