Chancellor John Healey today froze fuel duty and kept the 5p discount to provide some relief to hard-pressed drivers amid soaring pump prices.
Fuel duty was due to be unfrozen for the first time in 16 years, but Mr Healey has bowed to pressure to keep it at 52.95p per litre in his Budget.
The 5p cut first introduced in 2022 amid the Ukraine crisis, which was only supposed to last a year, has also been extended again until July next year.
As he revealed his Budget to the House of Commons on Wednesday, Mr Healey told MPs: ‘Earlier this year, the Government extended the 5p cut to fuel duty and slashed red diesel to its lowest rate in over 20 years.
‘With the war in the Middle East still driving high fuel prices, I am extending these tax cuts for motorists through the winter and spring to July, supporting households, hauliers, and farmers.
‘And for anyone who relies on their car for their work, from care workers to engineers, I am increasing the higher mileage rate from 25p to 35p per mile, and making permanent the increase to the standard mileage rate introduced earlier this year.’
Chancellor John Healey today froze fuel duty and kept the 5p discount to provide some relief to hard-pressed drivers amid soaring pump prices
Petrol and diesel prices have continued to soar this year, as a result of the Iran war and ongoing disruption from Russia’s invasion of Ukraine.
Diesel pushed past the record price of £2 a litre earlier this month, while average unleaded petrol prices have reached around £1.75 a litre, their highest in more than four years.
It means 2026 is on course to be the second most expensive year on record for drivers to fill up, despite fuel duty having remained at its current rate since 2022, the RAC said.
Prior to Wednesday’s Budget, a survey by the motoring group found one in three drivers (34 per cent) would prefer the Chancellor cut VAT on fuel over reducing fuel duty.
This compared to 29 per cent of motorists who preferred to see a cut in fuel duty.
VAT on road fuel is charged at 20 per cent on top of the combined price of the product and fuel duty.
Currently, fuel duty and VAT combined make up 47 per cent of the total cost of a litre of unleaded and 43 per cent of the cost of a litre of diesel, according to the RAC.
Hi, I’m Simon Lambert, publisher of This Is Money, and now that the Budget has landed, it’s important you get your finances in order.
We now know exactly what the Budget included and what you need to do to protect your money. But it’s not just this Budget we need to worry about, as a painful set of tax raids were already on the way. So, I’ve enlisted the help of leading financial experts to create a six-week plan. We explain what you need to know and how to protect your finances.
About two-thirds (65 per cent) of motorists said they are cutting back on other spending this month because of the high cost of fuel compared with 61 per cent in April, the survey of 1,208 regular UK drivers found.
Meanwhile, 47 per cent of respondents said they were struggling with the cost of filling up their vehicles, up from 39 per cent in April.
RAC senior policy officer Rod Dennis said: ‘It’s easy to forget that fuel duty is already lower than it was several years ago given it was cut by 5p in the early days of the Ukraine war.
‘But this hasn’t stopped prices spiralling this year as a result of the ongoing conflicts in the Middle East.
‘An end to hostilities and a lower oil price would deliver the greatest relief at the pumps, but this isn’t something that’s ultimately in the UK’s control.
‘The extent to which drivers are taxed, however, most certainly is.
‘Cutting fuel duty further should deliver some relief at the pumps while reducing VAT is another option available to the Government and is narrowly preferred by drivers in our research.
‘The two approaches work differently.
‘A fuel duty reduction would take the same amount of tax off every litre of petrol and diesel while a VAT cut would produce a larger saving on the more expensive fuel.
‘With diesel currently costing more than petrol, diesel drivers would therefore see a slightly greater cash saving.’
The Burnham Budget is here… but what does it mean for YOU? Click here to sign up to Simon Lambert’s subscriber-exclusive newsletter series and learn exactly how to Protect Your Money.
