Drivers are being warned to expect a fuel duty rise in the Government’s forthcoming Budget.

The RAC issued the alert after Prime Minister Sir Keir Starmer said there was a £22 billion “black hole” in the public finances.

A 5p per litre cut in fuel duty was introduced by the Conservative government in March 2022.

Drivers haven’t been benefiting from the current discount

Before this, fuel level had been frozen at 57.95p since March 2011.

VAT is charged at 20% on top of the total price.

RAC head of policy Simon Williams said Chancellor Rachel Reeves has “no option but to put fuel duty back up to 58p a litre in October’s Budget”.

He went on: “She knows the 5p discount is losing the Treasury £2 billion a year. She also knows drivers were overcharged by a staggering £1.6 billion last year according to the Competition and Markets Authority’s recent report.

“We’d normally be against any increase in duty, but we’ve long been saying drivers haven’t been benefiting from the current discount due to much higher-than-average retailer margins.

“As more and more electric vehicles come on to the roads, the Government will need to tax drivers differently.

“We think replacing fuel duty with a pay-per-mile system as soon as possible is the way forward as then the only tax levied on fuel would be VAT. This would give retailers nowhere to hide.”

The RAC is calling on retailers to slash fuel prices to reflect lower wholesale costs.

It believes average prices should be lowered from 142p per litre to 136p per litre for petrol, and from 147p per litre to 139p per litre for diesel.

It said retailers’ margins – the difference between what they pay for fuel and the pump price – were 10p per litre for both fuels last week, compared with the long-term average of 8p per litre.