The government is close to lifting its eight-year long freeze on fuel duty to raise billions of pounds to help meet pressure from cabinet ministers to boost public spending while also continuing to reduce the deficit.



An inflation-linked increase would raise £800m extra for Treasury coffers next year – and billions more over subsequent years – to help pay for Theresa May’s promise to spend an additional £20bn on the National Health Service by 2023, a pledge which the prime minister had said would partly be funded through a “Brexit dividend”.

Senior government sources told the Guardian that the plan to scrap the 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, with a number of ministers lobbying for funding for their own departments since the news of the NHS boost.

Ministers are also understood to be considering lifting the freeze on alcohol duty – which covers beer, wine, cider and spirits – announced in last autumn’s budget and costing the Treasury more than £200m a year.

Scrapping the fuel duty freeze, one of the Tories’ most high-profile policies, risks angering some Tory backbench MPs who have expressed concerns over the rising cost of living and could even block the move in the Commons.



But while motorists have saved hundreds of millions of pounds over the last eight years, the successive freezes are estimated to have cost the Treasury around £46bn since 2011-12, with further losses of £26bn to be incurred by the end of 2020-21.

Carl Emmerson, deputy director of the Institute for Fiscal Studies, said: “If they don’t [lift the freeze] the deficit hole will get even bigger. The challenge of finding the money for the NHS, keeping the public finances on the track the chancellor might want, would all be harder if you continued freezing it.



“I presume that the Treasury is finding it difficult to say we can just squeeze spending in areas such as defence or schools or justice or working age welfare. That leaves them the option of either ditching the deficit target and borrowing more, or going for some tax rises.”

The Institute for Fiscal Studies estimated that if the fuel duty policy had been left unchanged since June 2010, when it was first amended by then chancellor George Osborne, then the tax would currently raise about £9bn a year more than the £28 billion now forecast to be raised in 2018-19.

Ministers have been grappling with how to fund the prime minister’s NHS promise without having to resort to ripping up the Tory manifesto pledge to eliminate the deficit by the mid-2020s.

May said last month that tax rises would be needed to pay for the funding boost but promised this would be done in a “fair and balanced” way. She suggested a so-called Brexit dividend would free up cash currently going to Brussels – a claim which immediately triggered a sceptical response.

The prime minister has faced intense lobbying to increase public spending on certain departments, with senior cabinet ministers including defence secretary Gavin Williamson, education secretary Damian Hinds and home secretary Sajid Javid all lining up to argue for more cash.

But the chancellor has told the cabinet not to expect any extra funding for sectors including the armed forces, schools and policing following the health pledge.

Senior Tory figures believe that lifting the freeze on fuel and alcohol duties would be more palatable to the public than other options including putting up the basic rate of income tax for the first time since the 1970s. Freezing tax thresholds has also been raised as a possibility although it could breach the manifesto.

They are also keen to avoid making changes to national insurance after the chancellor’s U-turn on the issue last year, and are reluctant to borrow to invest, which would mean casting aside a central line of attack on Labour’s spending plans.

There is unlikely to be any extra cash available from May’s Brexit dividend until 2021 at the earliest, with some sceptics suggesting the damage inflicted to the UK economy by leaving the EU would wipe out any fiscal benefit for years.

A Treasury spokesperson said: “As the prime minister and chancellor have made clear, taxpayers will have to contribute a bit more, in a fair and balanced way, to support the NHS we all use. We will listen to views about how we do this and will set out plans at future fiscal events.”



Tory insiders are worried they could struggle to convince some backbenchers of the wisdom of lifting the freeze, amid claims that it helped to cushion the impact of weak wage growth.

They also want to avoid the type of damaging U-turn that occurred after the chancellor scrapped a national insurance rise for the self-employed last spring, as Tory backbenchers questioned whether it was compatible with election pledges.

Motoring groups claim British drivers already face the most expensive costs in the world. Tory MP and former minister Robert Halfon, leader of previous campaigns against lifting the freeze, has warned that any rises could hit working families.

Last year, he told the Guardian: “Any rise in fuel duty would really hit hardworking people. It doesn’t just push up the costs for drivers but small businesses, bus fares and food prices because of the transportation costs. The fuel duty freeze has been one of [the] great achievements of this government – and why reverse that?”

However, environmental campaigners were expected to support any move to lift the fuel freeze, having spent much of the last decade warning of the increase in toxic pollution.

Last month, former government transport advisor Professor David Begg claimed that freezing duty had reduced fuel prices by 13%, resulting in a 4% increase in traffic that had triggered 4.5m tonnes of carbon dioxide emissions.

The main rate of fuel duty was cut by 1p in the 2011 budget to 57.95 pence per litre and has been frozen at this rate. VAT is also paid on fuel at 20%.