Chancellor John Healey will use his Budget announcement on Wednesday to freeze fuel duty and set out plans for longer-term energy reforms, as he attempts to give households and businesses relief from rising costs without breaching Labour's fiscal rules.
The fuel duty freeze will maintain the levy at 52p per litre for a 16th consecutive year, cancelling a planned January increase. Beyond the immediate freeze, Mr Healey signalled that the Government would work towards structural changes to energy pricing. Prime Minister Andy Burnham has ordered the Chancellor and Energy Secretary Miatta Fahnbulleh to examine scrapping standing charges from gas bills and breaking the link between wholesale gas prices and electricity bills, despite gas making up only a small percentage of total generation.
In a video message before the Budget, Mr Healey said the announcement would deliver "breathing space for today and fresh hope for the future". He acknowledged global uncertainty, with conflicts abroad pushing up energy prices and straining families, businesses and public finances. However, he highlighted that Britain's economy showed resilience, with investment up and productivity growing, and that the country achieved joint fastest growth in the G7 in the first half of the year. The Chancellor stressed that all measures would be implemented "responsibly", adhering to Labour's fiscal rules requiring day-to-day spending to be financed by taxes rather than borrowing by 2029-30 and that public debt as a share of the economy should fall by the same year.
Other announcements expected include ending the Carers' Allowance cliff edge that has penalised unpaid carers for exceeding their earnings limit. Ministers have also announced plans to make a higher tax-free mileage allowance of 55p permanent and to reduce tariffs on popular foods including chocolate, beans and gherkins. The Chancellor is expected to raise the minimum wage by nearly 4% and end the trend of raising the minimum wage for those aged 18 to 20 by more than the rate for older workers, bringing it roughly in line with the rate for over 21-year-olds.
The announcement comes as the Government faces pressure from opposition parties on multiple fronts. The Conservatives have demanded the Chancellor set out a clear path for defence spending to reach 3% of national income by 2030, with shadow chancellor Andrew Griffith stating that Mr Healey must resign if he fudges this commitment. The Liberal Democrats urged deeper cuts to fuel duty and other costs, while Reform UK's Treasury spokesman Robert Jenrick criticised the approach as insufficient, arguing that spending cuts are needed to provide relief to families and businesses.
For UK households and businesses, the fuel duty freeze and planned energy reforms offer immediate cost relief, though their long-term impact depends on whether the Government's structural energy changes materialise and succeed in bringing bills down.