Motorists were warned on Monday of a near-doubling of the cost of diesel at the pumps from existing record levels in the fallout of the war in Ukraine, as pressure mounted on Rishi Sunak, UK chancellor, to intervene.
Experts told MPs on the House of Commons Treasury select committee that fuel prices could continue to soar, with the possibility that diesel hits £ 3 a liter and also raised the risk that rationing might be required.
Sunak will address next week the growing cost-of-living crisis in a spring financial statement, with Tory MPs urging him to cut fuel duty to help offset the cost of motoring.
The chancellor has given no indication to Tory MPs that he will yield to their request; he would rather wait until his autumn Budget to see how fuel and energy prices evolve.
But Sunak may feel obliged to offer some help to motorists now – including “white van” drivers, for whom fuel costs form a major part of their business outgoings – as Tory pressure mounts.
Dr Amrita Sen, director of research at Energy Aspects, told MPs that industrial usage of diesel could keep prices high, saying they could go to “£ 2.50 – even closer to £ 3, just depending on how high oil prices get”. She warned rationing may be needed. Diesel prices have hit more than £ 1.70 a liter in parts of the UK.
There are concerns about a supply crunch after Prime Minister Boris Johnson ordered an end to all Russian oil imports by the end of the year. Britain obtains about 8 per cent of oil from Russia but that rises to 18 per cent for diesel.
Nathan Piper, head of oil and gas research at Investec, told MPs the oil price shock was similar to that in the 1970s, but that it would be accompanied by higher prices for other goods such as food and gas.
“We’ve got to be up front, this is going to last for a while,” he told MPs. “Maybe it moderates, but this is going to be a cost-of-living crisis for people for a long time to come.”
Sunak is under pressure to use a VAT “windfall” on rapidly rising fuel prices – the tax is levied at 20 per cent on sales – to cut fuel duty by 5p a liter. The chancellor’s aides declined to comment.
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RAC spokesperson Simon Williams said: “Our calculations show Rishi can afford a 5p-a-liter cut in fuel duty – thanks to all the extra money being made from the VAT element which is slapped on top of the pump price.”
Piper said: “If more stringent actions are imposed on Russia and 5mn barrels a day is truly taken out of the market, then oil prices would really have no ceiling.” Asked how high the cost of fuel in the UK could go, he replied: “Not to be flippant but pick a number.”
Sunak will also come under pressure later this year to help households facing further huge increases in domestic gas bills, with some predicting the current price cap of £ 1,277 will rise to about £ 3,000 in October.