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 US-Iran conflict , who will be stung by the proposed changes. What is the green fuel tax? 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 the conflict on 28 February.

However, in Wednesday’s Budget, Healey will be looking for further ways to curb the Government’s almost £3trn debt amid soaring interest rates. Chancellor John Healey with Secretary for Energy Security and Net Zero, Miatta Fahnbulleh. The two Cabinet members are said to agree on the new ‘carbon charge’ (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 conflict in the Middle East, 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 probable that refueling will continue to make a dent in motorists’ pockets. Any additional import taxes can at times be passed on to 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.” The levy could also impact businesses. “Fuel costs are a source of increasing pressure on firms,” William Bain, Head of Policy at the British Chambers of Commerce told The i Paper . “The BCC’s latest research found 43% of businesses citing them as a driver for price rises. This rockets to 86% in the transport and logistics sector.

“If government has any plans to apply CBAM to fuel imports, then it must consult with business. “At the very least, they will want to see free allowance adjustments to soften the blow of any tax rises and avoid huge new bills for firms which rely on fuel imports,” he continued. End to fuel duty cut 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.

The levy 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, fuel duty is set to rise in line with the rate of the Retail Prices Index of inflation, currently 3.9 per cent (up from 3.4 per cent in August). Further pressure could come from 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 (£122.53) per tonne of carbon emissions, followed by Sweden (€133.17/£111.58). The lowest carbon tax rates can be found in Poland (€0.09/£0.07) and Ukraine (€0.59/$0.49). The average carbon tax rate among the 24 European countries was €53.63 (£44.94) as of 1 April, 2026.