Which fuel duty changes were announced in the budget?

What is the UK's current fuel duty regime and how could it affect what British drivers pay for petrol and diesel?

Hand of man fueling up a vehicle with a yellow gas pump.
Rachel Reeves decided not to raise fuel duty as she delivered her first budget. (Getty)

Chancellor Rachel Reeves has confirmed fuel duty will remain frozen until next year.

Ahead of the autumn budget, it had been reported 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 confirmed Labour will freeze fuel duty until 2025. The Times had reported at the weekend that, despite conflicting reports, she wasn't considering the 'toxic' move of raising fuel duty.

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.”

Government financial watchdog, the Office for Budget Responsibility (OBR), however, has warned successive failures to increase fuel duty risks eating into the chancellor's financial headroom.

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.

Fuel duty has been frozen at 52.95p/litres since 2011
Fuel duty has been frozen at 52.95p/litres since 2011 (Flourish/Yahoo Finance)

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, but instead ended up praising 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."

The RAC said the news would have drivers breathing a "sigh of relief".

The OBR, the government's financial watchdog, however sounded a note of caution. Tom Josephs, a member of the OBR's budget responsibility committee, said there would be a "significant cost" to the "repeated practice" of freezing fuel duty.

Commenting on the budget, he said: "I think we’ve estimated that if you go back to 2010, the total cost to the public finances has been about £100bn from not implementing those increases.

"Looking forward, our forecast does assume that from next year the policy will be implemented, fuel duty will increase, reverse the 5p cut, and therefore that benefits the public finances in our forecast by about £5bn in the final year of our forecast.

"The margin that the chancellor has left against her current balance rule is about £10bn, so not implementing those measures would cut about half the headroom the chancellor has against her fiscal mandate."

Others have been more explicit in their criticism.

The Social Market Foundation, a charity, has previously claimed the freeze has done little to help the country's poorest, while disproportionately benefitting the wealthiest.

It has argued the fund raised by scrapping the freeze could have gone to subsidies for bus and rail services or electric vehicles.

The Institute for Fiscal Studies (IFS) has previously urged the government to consider alternatives to fuel duty anyway, which is likely to produce diminishing returns as motorists shift to electric vehicle.

Following the budget, IFS director Paul Johnson took to X, formerly Twitter, to vent his frustration at the policy, posting: "For goodness sake. Despite big tax rises overall chancellor has done it again. Fuel duty frozen and "temporary" 5p cut kept. This government is supposed to care about climate change. And I'm willing to bet fiscal numbers assume increases into the future. How much longer?"

Hand hold charger at Electric car charging stations in the streets/shopping mall
Some campaigners have said money raised from reversing the fuel duty freeze could have been better used to fund subsidies for electric vehicles. (Getty)

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.