Labour faces fresh calls to scrap New Year fuel duty raid as study shows Iran war has cost drivers extra £5billion at the pumps - with Chancellor Rachel Reeves days away from netting £1billion VAT windfall thanks to sky-high prices

Published: 17:01, 14 July 2026 | Updated: 17:05, 14 July 2026 LABOUR today faced renewed calls to scrap its New Year fuel duty raid as a study showed the Iran war has cost drivers an extra £5billion at the pumps. The RAC Foundation research found the conflict has collectively cost motorists the eye-watering sum since 28 February, when pump prices soared after the US bombed Iran and Tehran blockaded the Strait of Hormuz. Meanwhile, Chancellor Rachel Reeves’s VAT windfall thanks to higher prices is set to hit £1billion within days, today's study found. She has benefitted from the crisis because the 20 per cent levy accounts for a larger slice towards Treasury coffers when pump prices are higher. It sparked fresh calls for Labour to scrap its planned fuel duty hike, set to kick in from 1 January. It will pile pressure on Prime Minister-in-waiting, Andy Burnham, and his new Chancellor to make scrapping the hike one of their first acts in Downing Street to ease cost of living pressures. Tory shadow transport minister Greg Smith said: ‘For all her complaints about price gouging, it turns out the Chancellor is on the verge of gouging an extra £1billion out of hard pressed motorists. The RAC Foundation found the Iran conflict has collectively cost motorists £5billion at the pumps after oil prices were pushed up by the war  ‘It is now morally indefensible for planned fuel duty hikes to go ahead and the new PM and Chancellor need to make that an early U-turn.’ Howard Cox, founder of the FairFuel UK campaign, said: ‘Drivers and businesses have already been hammered with billions in extra fuel costs thanks to the Iran conflict, while the Treasury has quietly banked a colossal VAT windfall from the very same price rises. ‘Now Labour wants to pile on a fuel duty hike from January — with 20% VAT automatically added on top. That’s shameless.’ Ms Reeves had been due to start hiking fuel duty by 5p a litre from September, but postponed this until January amid sky-high petrol and diesel prices. Before the conflict erupted, petrol was an average 132.83p a litre while diesel was 142.38p. They dipped after Iran and the US signed a temporary peace deal, known as a memorandum of understanding (MOU), last month. But in recent days they have started creeping up again after the peace deal broke down and the US started bombing Iran again. Average petrol prices remain above 150p a litre and nearly 165p for diesel, meaning a fill-up with both fuels remains over £10 more expensive than before the conflict. Steve Gooding, director of the RAC Foundation, said: ‘The barrel-price of oil we had been watching fall is pushing up again, dashing motorists’ hopes of a return to pre-war forecourt petrol and diesel prices. ‘We have already had one postponement of the planned increase in fuel duty. Against this backdrop it might not be the last.’ The Treasury was contacted for comment.