LONDON — Chancellor Rachel Reeves is planning to cancel a scheduled rise in fuel duty when she unveils a package of measures to reduce the cost of living in the Commons on Thursday. Reeves will not increase fuel duty by 1p in September and could cancel a planned 5p rise due to take effect in stages over the next six months, according to government sources.

The plan forms part of a wider effort to mitigate a rise in inflation linked to the war in Iran. At the last budget, Reeves announced she would freeze fuel duty for nine months and end a temporary 5p fuel duty cut beginning in September. The temporary 5p cut was first announced by Rishi Sunak in 2022 in response to Russia's invasion of Ukraine and costs the government an estimated £2.4bn a year.

"The government is determined to keep costs down for motorists paying more because of the war in Iran. That's why we've extended the 5p fuel duty cut twice, until September. While the chancellor will continue to monitor the situation, as the chancellor has set out, a rapid de-escalation in the Middle East remains the best way to keep pump prices low." the Prime Minister's spokesperson said.

Richard Walker, executive chair of the supermarket chain Iceland and the government's cost of living champion, addressed the expiring measure in public remarks. "The 5p fuel duty cut that you allude to is an interesting one. That's going to expire in September. I think, given where we are, we do need to be thinking and talking about extending it or enlarging it." Walker said.

Reeves has been considering options including freezing private sector rents and subsidising energy bills to keep prices low. A rent freeze has been ruled out, according to officials, and the chancellor is expected to wait until later in the year to announce an energy bill relief package. Energy usage is much lower in the winter, according to government sources, and Reeves wants to wait before deciding how much to spend on subsidising energy bills.

Reeves has also allocated £50m to subsidise the cost of heating oil for families who use it to heat their homes. Many of those families live in rural areas, especially in Northern Ireland.