Healey ‘proposes green fuel tax’ – what it means for drivers and petrol prices

John Healey is considering expanding taxation on imported fuel in next week’s Budget, triggering fears that record-high petrol prices will continue to soar, reports have claimed. The policy means introducing a new tax on overseas imports will now match those currently paid by UK manufacturers. Supporters of the levy say it will “level the playing field”, preventing British companies from being undercut by foreign competitors and tightening up the UK’s energy security. However, critics say it will be consumers, who have already been hit with record high prices at the pumps due to the Iran-US conflict, who will be stung by the proposed changes. The Chancellor is allegedly considering a “carbon charge” on refined fuel products such as petrol and diesel imports, The Daily Telegraph reports. Under a new carbon border adjustment mechanism (CBAM), imported fuel would incur the same costs as domestically refined products. The Energy Secretary, Miatta Fahnbulleh, is reported to be supportive of expanding the CBAM, which will come into force on 1 January, 2027. The changes will see imported raw materials such as aluminum and steel taxed with an additional “carbon charge” and under the proposed changes, this will extend to petrol and diesel. The RAC Foundation, a transport policy research group, estimates the government has collected approximately £1.27bn in extra VAT on petrol and diesel since prices soared following the start of America’s war with Iran in February. However, in Wednesday’s upcoming Autumn Budget, Healey will be looking for further ways to curb the Government’s almost £3tn debt amid soaring interest rates. Chancellor of the Exchequer John Healey with State for Energy Security and Net Zero Miatta Fahnbulleh (Photo: Peter Nicholls/Getty) Elizabeth de Jong, the chief executive of Fuels Industry UK, which represents companies involved in refining, renewable fuel production, terminal operations and petrol stations, said the proposed tax would bring investment to the UK: “Without that level playing field there is both carbon leakage and investment leakage. We want to make sure investment is coming to the UK rather than going abroad. “It’s so essential to our energy security that we make the things we need here.” What does this mean for petrol prices? Consumers are paying almost £1.75 a litre for petrol, a 31 per cent increase since the start of the Middle East conflict, according to motoring organization RAC. The rise is even sharper for diesel – up 40 per cent to a record £2 a litre. It is yet to be seen how the expansion of CBAM will impact petrol prices, however, it’s likely that refueling will continue to make a dent in motorists’ pockets. Any additional import taxes can at times be passed onto the consumer, however. However, John O’Connell, chief executive of the TaxPayers’ Alliance, said the carbon charges would “be a shameless tax raid disguised as environmental policy”. He said: “Levying carbon charges on imported fuel is little more than a tariff that will inflate pump prices and drive-up supply chain costs for ordinary families.” Fuel duty is set to rise by 6p at the start of 2027 (Photo: Alishia Abodunde/Getty Images) The Government extended the 5p temporary cut on fuel duty to the end of this year. It is not clear if this will be extended and therefore could increase prices. Duty is due to rise by 3 pence to 55.95 pence on 1 January and by a further 2 pence on 1 March, effectively adding 6 pence to the price of a litre of fuel — the equivalent of £3.30 more to fill up a family car. From April, duty is set to rise in line with the rate of RPI inflation, currently 3.9 per cent (up from 3.4 per cent in August). Further pressure could come from US President Donald Trump’s threat to ban diesel exports, with the UK among the biggest buyers. RAC Head of Policy, Simon Williams, said the government should use its “extremely high” VAT receipts to help motorists. Announced earlier this month, drivers can now see real time petrol and diesel prices on Google Maps which the Government said would help tackle the cost of living crisis. How do UK fuel prices compare with elsewhere? Britons pay more at the pumps than drivers in most European countries. That’s partly because VAT is charged at 20 per cent on the price including fuel duty, meaning 47 per cent of a litre of petrol and 43 per cent of diesel accounts for taxes. The UK’s “carbon charges”, however, are on the lower end of the scale, at £18 per tonne of carbon emissions, according to Tax Foundation Europe. Norway currently levies the highest carbon tax rate at €146.23 ($169.71) per tonne of carbon emissions, followed by Sweden (€133.17, $154.55). The lowest carbon tax rates can be found in Poland (€0.09, $0.11) and Ukraine (€0.59, $0.68). The average carbon tax rate among the 24 European countries was €53.63 as of April 1, 2026.