Chancellor Rachel Reeves has confirmed fuel duty will remain frozen until next year.
Ahead of the autumn budget, it had been widely expected the government would not only reverse the previous government’s cut to tax on petrol and diesel, but also raise rates further.
However, outlining spending plans to the House of Commons, Reeves appeared to back down what some sources had branded a “toxic” move, according to the Times newspaper.
The former Bank of England economist said the “very difficult” decision would cost the Treasury more than £3bn, but that the “substantial commitment” would be worth it – an assessment praised by motorist groups, but criticised by environmental campaigners and others.
She added: “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.”
Here, Yahoo News UK looks at what the UK’s current fuel tax regime is and how it could change.
Fuel duty is the charge set on fuels such as petrol, diesel and gas used to power cars, heating systems and other equipment or machinery.
The levies are a major source of revenue for the government and in the 2023/24 financial year alone were expected to raise almost £25bn – equivalent to more than 2% of all UK tax received by the Treasury.
Consumers are currently expected to pay:
52.95p per litre of petrol, diesel, biodiesel and bioethanol
28.88p per kg of liquefied petroleum gas (LPG)
22.57p per kg of of natural gas used as fuel in vehicles, such as biogas
9.78p per litre of ‘fuel oil’ burned in a furnace or for heating
The standard 20% VAT rate is also levied on most fuel purchases, although domestic heating fuel is charged at 5%.
Between 2011-2022 the rate for petrol and diesel was frozen at 57.95p per litre, before the Conservatives implemented their flagship temporary 5p cut, which the new Labour government has opted to keep in place for now.
Despite inflation and other pressures, the current tax regime has kept prices relatively low for British motorists, with petrol station prices falling to their lowest in three years last month.
Despite looking like an easy target for tax increases in the budget, Reeves opted to maintain fuel duty at current levels.
The government was looking to raise an extra £40bn to shore up and increase investment in public services. Reeves is reported to have told ministers during a cabinet meeting of plans to fill the “£22bn black hole” inherited by the previous government – a claim often repeated by Reeves but disputed in part by economic experts at the Institute for Fiscal Studies (IFS).
Meanwhile, Sir Keir Starmer had previously warned of a “really painful budget” coming for Britons and refused to rule out hikes to the tax.
But while some had speculated the government would unveil a 7p per litre hike – reversing the previous 5p per litre cut and hiking rates further – Reeves instead opted to hold steady, saying rises would have been the “wrong choice for working people”.
The current freeze, initially implemented in 2022, had already been extended for 12 months in March, but will now run until at least March 2026.
The Road Haulage Association, which represents the interests of British lorry drivers, had previously warned of “dangerous consequences” for small firms if the government ended the 14-year freeze on fuel duty rates.
Instead, the body praised the chancellor’s “brave” decision to maintain the freeze.
RHA managing director Richard Smith said: “Fuel prices continue to put a massive strain on budgets with diesel prices higher here than in any EU member state.
“More could still be done to support these businesses, the essential users of diesel for whom no other affordable choice of fuel exists. This support would go some way to reducing some of the pressures that have driven consumer prices higher.”
On the other side of the debate, organisations such as the Social Market Foundation charity has said the ongoing freeze has cost the Treasury £20bn since it was introduced and done little to help the country’s poorest families, while disproportionately benefitting the wealthiest.
Reacting to the budget, the think-tank said Reeves had opted to “waste £15bn over the next four years”, rather than diverting funds to subsidies for bus and rail services or electric vehicles.
Others have previously called for debates on whether taxes like fuel duty should be scrapped altogether and replaced with alternative revenue-raisers.
Sir John Armitt, the chairman of the National Infrastructure Commission (NIC), has said it is time for a “proper public debate” on whether to replace the current system, which almost completely omits electric vehicles, with a roads pricing system.
“It’s now or never on fuel duty… They are advising her that motorists can afford it and that if she doesn’t act to end the freeze now she will find it much harder to do so later in the parliament,” a Whitehall source told the Daily Mail on 17 October.
The IFS has said the chancellor will need to raise taxes to record levels to meet the government’s policy goals, especially as increasing take-up of electric vehicles eats into its tax take from fuel duty.
Even if the levies on fuel for cars were to remain untouched, campaigners have urged ministers to consider new charges on aviation fuel, claiming a jet fuel tax could raise £6bn a year.
Drivers of petrol cars get a relatively good deal in Britain, compared to our nearest neighbours in western Europe.
While the UK currently has the ninth highest rate of fuel duty, before VAT is factored in, it is still cheaper than nations such as France, Germany and the Republic of Ireland.
British drivers also get the tenth best price for petrol, according to the RAC, at 135p per litre – 10p cheaper than France and significantly behind Denmark, whose motorists pay the most at 161p.
Bulgarians get the cheapest petrol in Europe, shelling out just 105p per litre thanks to a combination of one of the lowest fuel duty and VAT rates on the continent.
It is a different story for diesel however, with the UK charging the highest rate of duty in Europe for the fuel.
At an average price of 139p per litre, is it also the second highest at-the-pump price, dwarfed only by Finland, where drivers pay 147p, thanks largely to high VAT charges.