The Irish cabinet has agreed to slash excise duty on petrol from midnight, as pressure builds on the UK chancellor, Rishi Sunak, to follow suit and cut tax on fuel in the UK.
At a meeting in Dublin, ministers agreed a 20 cents (17p) cut in tax on unleaded petrol, 15 cents on diesel and 2 cents on agricultural diesel until the end of August.
The finance minister, Paschal Donohoe, said: “We are experiencing the consequences of a war. The government is acting now, with this excise measure in response to price rises that we have seen today but also in anticipation of further rises that we do expect to see over the short to medium term.”
The Irish government made the decision after stark warnings from experts about the impact the Russia-Ukraine war would have on fuel and food security.
Donohoe said state resources were limited, indicating a fall in tax revenues would need to be clawed back.
With oil prices now at a 14-year high, Sunak is being urged to cut VAT on petrol to ease the pressure on householders and businesses already facing spiralling costs.
The average price of a litre of petrol in the UK, already at record levels, rose from 156.4p on Monday to a new high of 158.2p on Tuesday, compared with Ireland where it is about 205c (172p).
VAT makes up 16% of the price of fuel, according to the Royal Automobile Club, which said a cut in VAT from 20% to 15% would reduce the cost per litre by about 6p.
Drivers and businesses have also been hit by a record daily increase in diesel prices. Figures from the data firm Experian Catalist show the average cost of a litre of the fuel at UK forecourts reached 165.2p on Tuesday, up nearly 3p on Monday’s 162.3p. The RAC said the jump was the largest on record, with data dating back to the year 2000.
Hauliers also said their profit margins were being wiped out because of rising diesel bills and this would have to be passed on to consumers. The Road Haulage Association estimates the surge in diesel price has pushed up the cost of running a lorry by about 40% in the last year to £56,000, an increase it said the industry “just cannot absorb”.
The RAC fuel spokesperson, Simon Williams, said: “The cost of a filling a 55-litre family car with petrol is now £87 – £7 more than it was at the start of the year. Diesel drivers are even worse off, with a tank now costing more than £90 for the first time ever – £8 more than in early January.”
With the war in Ukraine and announcement of bans of Russian oil and gas in response, wholesale fuel prices have soared and the price of Brent crude exceeded $124 a barrel on Wednesday.
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Williams said this meant price increases at the pump in the coming days were inevitable.
“Petrol is now certain to top an average of £1.60 a litre this week, while diesel will progress very quickly towards £1.70. We continue to call on the chancellor to help drivers by temporarily cutting VAT to at least 15%,” he said.
“As it stands, 26p a litre of what drivers are paying on the forecourt is attributable to VAT and that comes on top of 58p a litre in fuel duty. This tax on a tax is causing unbelievable financial pain to drivers, which is why we believe Mr Sunak holds the key to easing the burden.”
