Rachel Reeves is said to be preparing to abandon a planned increase in fuel duty as costs continue to soar as a result of the conflict in the Middle East.
The chancellor announced in the November budget that the fuel duty reduction would be extended until the end of August 2026, with rates then gradually returning to previous levels over the next five years.
But she has been under pressure in recent weeks to shelve the plans – introduced by the Conservative government in March 2022 after the outbreak of the Ukraine war – in light of the closure of the Strait of Hormuz.
Ms Reeves is now reportedly poised to announce plans to keep the reduction in place on Thursday, with an insider telling The Sun: “They have been looking at fuel duty.”
Government sources also told The Times the chancellor is set to abandon the planned rise, which will cost an expected £2.4 billion.
In March, Iran imposed a blockade on the Strait of Hormuz, which carries more than a fifth of the world’s oil, as a result of attacks from the US and Israel.
The ongoing closure has seen fuel prices surge across the globe, with prices at the pump having risen from 132.9p per litre to 157.99p per litre for petrol, according to the latest RAC figures.
Sir Keir Starmer has laid out plans for the UK, alongside France, for a multinational mission to reopen the Strait once conditions allow for it.
It aims to reopen the Strait of Hormuz and conduct mine-clearing operations, while protecting merchant vessels and commercial shipping operators. The Ministry of Defence announced on Tuesday that it was deploying mine-hunting equipment, cutting-edge counter-drone systems, Typhoon jets and HMS Dragon, which is already on its way to the region.
But plans for the mission, and Ms Reeves’ reported decision to shelve plans scrapping the reduction in fuel duty, comes amid chaos within the Labour government.
Sir Keir Starmer is currently fighting for his political life as he faces a challenge to his leadership after last week’s disastrous local election results.
Last week, the chancellor warned colleagues not to put the economy “at risk” by “plunging the country into chaos” after figures showed gross domestic product grew in the first three months of the year.
Ms Reeves responded to the figures by saying “now is not the time” to risk instability amid a possible leadership challenge against the prime minister.
