Cost of Iran struggle to drivers on the pumps set to hit eye-watering £1billion as Chancellor Rachel Reeves rakes in further £170m VAT windfall

The cost of the Iran war to drivers at the pumps is set to hit an eye-watering £1billion today.

Analysis found the extra amount motorists have shelled out since the conflict sent forecourt prices spiralling surged past £920million last night.

And it is set to hit £1billion by this evening after millions of motorists hit the road for the great Easter getaway and pump prices surged again yesterday, with average diesel rates rising dangerously close to a record £2 a litre.

But in a ray of hope for hard-pressed drivers, global oil prices plunged by 13 per cent below $100 a barrel again to $94.80 (£70.73) following the US and Iran‘s temporary ceasefire agreement.

And experts said that if it holds and the Strait of Hormuz remains open, pump prices could tumble by around 8p a litre – or roughly £4.50 a fill-up – within weeks.

Despite this, Chancellor Rachel Reeves faced fresh calls to delay her planned fuel duty hike as the RAC Foundation analysis found the crisis has netted her an almost £170million windfall in little over a month from extra VAT receipts on higher pump prices.

Critics said she should use it to delay her 5p a litre fuel duty hike, which will kick-in on 1 September and add another £3 to the cost of a fill-up.

She and Sir Keir Starmer have vowed to press ahead with the hike despite mounting calls to follow other countries by ditching it and cutting petrol taxes rather than raising them to help out hard-pressed drivers amid the crisis. 

 Filling the average 55-litre tank in a family car with petrol has already soared nearly £14 and almost £27 for diesel since the conflict erupted on February 28.

Yesterday average forecourt diesel prices rose to 190.62p a litre, less than 9p short of the record 199.09p in 2022, sparked by Russia’s invasion of Ukraine. They have jumped 34 per cent from 142.38p on February 28.

Meanwhile, petrol jumped to 157.71p a litre – up 19 per cent from 132.83p over the same period.

Steve Gooding, director of the RAC Foundation, said: ‘Whether or not we are on the cusp of meaningful and hopefully long-lasting peace, drivers continue to pay a huge ‘war premium’ at the pumps, and the Exchequer continues to receive tens of million of pounds from drivers in a VAT windfall it wasn’t expecting.

‘Even if the price of oil begins a sustained drop, it has got a long way to go before reaching the $70 a barrel mark which is where we were just before the conflict started.

‘That means drivers will continue to feel financial pain on the forecourts probably for weeks to come.’

However, Edmund King, AA president, said he believed a fill-up being as much as £4.50 cheaper may not be far off.

He said: ‘The conflict has been painful for drivers and hauliers.

‘With the ceasefire now in place, it is hoped fuel prices could fall by around 8p per litre over the coming weeks.

‘However, consumers need an extended period of support following the hike in pump prices.

‘The planned rise of fuel duty starting on 1 September should be delayed to help ease pressure on household budgets and keep costs down, particularly as it hits over the winter when heating and road fuel costs increase.’

And Gordon Balmer, boss of the Petrol Retailers Association, which represents about 4,500 forecourts, said: ‘Falling oil prices are welcome news for motorists and if this trend continues it should be reflected in lower pump prices.

‘However, it is to be noted that this is a temporary ceasefire and the market remains volatile.’

Commercial ship crossings through the Strait have plunged by around 95 per cent since the conflict started, strangling Western oil supplies and pushing up prices as supply dried up.

In turn, this has sent pump prices soaring.

However, changes in oil prices usually take at least a few weeks to be passed on at the pumps, meaning any drops will take a while to filter through to drivers.

Yesterday it was announced that US President Donald Trump has agreed to suspend his planned bombing of Iran for two weeks.

As part of the temporary ceasefire agreement, Tehran promised to end its blockade of the Strait so oil deliveries can resume while the finer details of a peace deal are thrashed out.

If a permanent deal is struck, there are hopes that oil prices will soon plunge further as supply ramps up, in turn sending pump prices plummeting.

The RAC Foundation’s analysis looked at daily consumption data and price fluctuations between February 28 and yesterday, comparing how much drivers would have paid if prices remained the same with the higher rates they’ve been paying each day.

Diesel drivers have suffered the worst hammering, spending £676million more at the pumps because of higher prices since February 28.

The Tories’ shadow transport secretary Richard Holden said: ‘Labour’s fuel duty hike comes at the worst possible time for families already struggling under the weight of this Government’s tax hikes.

‘Britain has been left exposed to the energy crisis by Labour’s Net Zero zealotry and drivers are already in the firing line.

‘Labour should listen to the country and back thought-through Conservative plans to bin the hike to help keep bills down for households, and Get Britain Drilling in the North Sea to secure our fuel supplies.’

Tory shadow transport minister Greg Smith added: ‘Cars are essential to millions of Brits.

‘Labour’s political choice to hike fuel duty this September is a massive kick in the teeth for so many, not least when other countries are cutting fuel duty amid the crisis.

‘This chancellor and PM need to get a grip, understand the real world, and scrap their fuel duty hikes.’

The Treasury was contacted for comment.