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Rachel Reeves said it would be the “wrong choice” to increase fuel duty next year, saying she would continue the freeze and maintain the temporary 5p cut for another year.

She told MPs during The Budget she has to “take some very difficult decisions” on tax, and noted to retain the 5p cut and freeze fuel duty again would cost more than £3 billion next year.

The Chancellor said: “At a time when the fiscal position is so difficult, I have to be frank with the House that this is a substantial commitment to make.

“I have concluded that in these difficult circumstances while the cost of living remains high and with a backdrop of global uncertainty increasing fuel duty next year would be the wrong choice for working people.

“It would mean fuel duty rising by 7p per litre. So, I have today decided to freeze fuel duty next year and I will maintain the existing 5p cut for another year, too. There will be no higher taxes at the petrol pumps next year.”

Chancellor of the Exchequer Rachel Reeves poses outside 11 Downing Street (Lucy North/PA Wire)

But how does it work?

This means the 5p per litre cut in fuel duty introduced by the Conservative government in March 2022 will continue.

Until the 5p cut, fuel duty had been frozen at 57.95p per litre since March 2011.

VAT is charged at 20% on top of the total price of fuel.

Ms Reeves said: “To retain the 5p cut and to freeze fuel duty again would cost over £3 billion next year.”

Adding: “There will be no higher taxes at the petrol pumps next year.”

Government figures show the average cost of a litre of petrol and diesel at UK forecourts is around £1.34 and £1.40 respectively.

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