Prime minister Theresa May is considering an increase in fuel duty in an effort to raise money to meet her pledge to spend more money on the National Health Service.
Tax on fuel have been frozen for the last eight years, but May is understood to be under pressure from ministers to find ways to unlock money to meet her £20bn promise while still reducing the national deficit.
It is believed that an inflation-linked increase in fuel duty would bring in an extra £800m next year, and even more in following years were the decision given approval.
The Institute for Fiscal Studies estimates that if the fuel duty policy had been left unchanged by then-chancellor George Osborne since June 2010, it would currently raise about £9bn a year more than the £28 billion now forecast for 2018/19.
Fuel prices have reached four-year highs in recent weeks, with motorists noticing a gradual increase in petrol bills. Experts have put the increase down to a combination of high oil prices and a weak pound.
Senior government sources told the Guardian that the plan to scrap the fuel duty freeze, which chancellor Philip Hammond has continued since taking over at the Treasury, was under ‘serious consideration’ as it would ease pressure on the public finances. A number of government ministers have apparently smelled blood in the water on their own departmental cuts and are looking for spending boosts of their own.
Other tax increases under consideration include a lifting of the freeze on alcohol duty, which currently costs the Treasury more than £200m a year. Ministers are said to be less keen on the idea of raising income tax and national insurance to fill the spending hole.