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

John Healey, the UK Chancellor, is preparing to introduce a new carbon border adjustment mechanism targeting imported fuel in his upcoming Budget speech scheduled for Wednesday. The proposal aims to impose environmental levies on overseas refined products such as petrol and diesel, matching the net-zero fees currently paid by domestic British refineries. While supporters argue the measure levels the competitive playing field for UK manufacturers, critics warn it functions as a hidden tariff that will further inflate pump prices for consumers already grappling with record-high costs driven by geopolitical conflicts. The policy, known as CBAM, is designed to address the disparity where British fuel companies pay millions in environmental charges that foreign competitors do not. Under the current framework, CBAM applies to raw materials like aluminum and steel starting January 1, 2027. The proposed extension would include refined fuel products, ensuring imported goods incur similar costs to domestically produced items. Energy Secretary Miatta Fahnbulleh is understood to be a key proponent of the scheme, having presented the case directly to Healey. Paymaster General James Murray told Parliament on Friday that the government is assessing the feasibility and impacts of applying CBAM to refined products, signaling a strong likelihood of inclusion in the Budget. The timing of the announcement coincides with severe pressure on household finances. Motorists in the UK have already absorbed an estimated £10 billion in extra costs at the pumps since the outbreak of the Iran war. Petrol car owners have paid an additional £3 billion, while diesel users have incurred £7 billion in extra expenses. According to the RAC, petrol prices have risen 31 percent to nearly £1.75 per litre since the conflict began in late February. Diesel prices have climbed even more sharply, up 40 percent to a record £2 per litre. Oil prices recently hit a five-month high amid disruptions in the Strait of Hormuz. Despite these increases, the government has benefited financially. Research indicates the state has collected approximately £1.27 billion in additional Value Added Tax on petrol and diesel sales since prices surged. Furthermore, Healey has secured a windfall of nearly £1.7 billion from increased VAT receipts on fuel transactions. The Chancellor faces the challenge of managing a national debt approaching £3 trillion amidst soaring interest rates. Consequently, he is seeking additional revenue streams to balance the books, even as he looks to abandon planned hikes in standard Fuel Duty. Critics have reacted strongly to the prospect of the new levy. John O’Connell, chief executive of the Taxpayers’ Alliance, described the plan as a "shameless tax raid disguised as environmental policy." He argued that levying carbon charges on imported fuel is effectively a tariff that will drive up supply chain costs for ordinary families. O’Connell urged Prime Minister Andy Burnham to rule out introducing new punitive green taxes in the Budget. The British Chambers of Commerce expressed concern regarding the impact on businesses. William Bain, the group’s Head of Policy, noted that 43 percent of businesses cite fuel costs as a driver for price rises, a figure that jumps to 86 percent in the transport and logistics sector. Bain stated that if the government proceeds with the CBAM application to fuel, it must consult with industry and consider free allowance adjustments to prevent massive new bills for firms reliant on fuel imports. Industry representatives supporting the measure emphasize economic necessity. Elizabeth de Jong, chief executive of Fuels Industry UK, stated that without a level playing field, the UK risks both carbon leakage and investment leakage. She emphasized that making essential products domestically is vital for energy security and attracting investment to the UK rather than allowing it to flow abroad. The political landscape surrounding the decision reflects broader tensions within the governing coalition. Reports suggest Healey is under pressure to scrap Labour’s planned Fuel Duty increase, given the existing burden on motorists. Current plans involve a 3p per litre rise in Fuel Duty on January 1, followed by a further 2p increase on March 1. However, the government recently extended a temporary 5p cut in fuel duty to the end of the year, leaving its future status uncertain. In related energy moves, the government approved production at the Jackdaw gas field in the North Sea after months of delays. Additionally, Burnham is reportedly prepared to approve the Rosebank oil field, potentially unlocking 500 million barrels of oil, despite Environment Secretary Ed Miliband previously labeling such proposals as "climate vandalism." This fiscal strategy unfolds against a backdrop of widespread economic strain. In Birmingham, often cited as the epicenter of England’s benefits crisis, welfare spending in the Perry Barr constituency reached nearly £4,000 per resident in the year to March. The Taxpayers’ Alliance analysis showed that spending on the six main benefits in Perry Barr totaled £499,964,384. With a population of 125,283, this equated to an annual welfare spend of £3,991 per person. The area saw a 37 percent increase in benefits spending over just over two years, ranking among the highest growth rates in the country. Five of the top ten constituencies in England and Wales for the largest percentage increase in total benefits payments were located in Birmingham. Local residents in areas like Perry Barr report difficulty finding employment. Matt, a 35-year-old resident receiving Universal Credit, described the job market as stagnant, noting he received no responses to his applications. Nafeesa, a 20-year-old student, observed that peers who did not attend university were struggling to secure work. Government data indicates that Perry Barr has the highest proportion of unemployed Universal Credit claimants aged 20 to 29, at 79.8 percent. Meanwhile, older workers face distinct challenges. Michael Gibbons, a 62-year former consultant, became dependent on Universal Credit after being made redundant at 61. Despite over a hundred job applications, he failed to secure new employment, attributing the rejection partly to his age. Government figures show the unemployment rate for those aged 50 to 64 rose to 3.1 percent in 2025, up from 2.4 percent the previous year, representing the sharpest increase among all age groups. Ministers are reviewing welfare reforms, including measures to provide reduced financial support to young benefit recipients in exchange for intensive health and job assistance. A Treasury spokesman declined to comment on speculation regarding the Budget contents.