Fuel duty will be frozen again, but only for five months until September 2026, the chancellor has announced, as she confirmed a new 3p-a-mile charge for electric cars from 2028.
Rachel Reeves will freeze fuel duty in April at 52.95p a litre for petrol and diesel – a 16th successive year without a rise – but the so-called “temporary” 5p cut introduced by Rishi Sunak will be reversed in stages from September.
Raising fuel duty has become politically contentious since the first freeze announced by the coalition government in 2010, but the eventual rise will help maintain a differential in running costs to encourage the transition to electric cars when the new mileage-based levy on EVs takes effect from 2028-29. Fuel duty in effect costs about 6p a mile on average for cars.
The Office for Budget Responsibility (OBR) said the continued freeze of fuel duty until September and the staggered reversal of the 5p over late 2025-26 would cost the Treasury an extra £2.4bn next year and £900m a year thereafter, but it would bear down on the UK’s CPI inflation by 0.1 percentage points compared with its officially forecast rise in duty.
Reeves told the Commons: “Because all cars contribute to the wear and tear on our roads, I will ensure that drivers are taxed according to how much they drive and not just by the type of car they own.”
The additional electric vehicle excise duty (VED) will be payable with existing VED or road tax at 3p a mile for fully electric cars or 1.5p for plug-in hybrids. Reeves said it would help “double road maintenance funding in England over the course of this parliament”.
She pledged to accelerate the rollout of public EV charging and exemptions from business rates, but disappointed some by not lowering VAT on public charging to meet the domestic rates for electricity.
The new EV pay-per-mile charge is expected to raise £1.1bn in 2028-29, rising to £1.9bn in 2030-31. Electric vans, buses and HGVs will not be liable.
With EV advocates alarmed about the potential impact on the transition from fossil fuel to greener vehicles, Reeves said she was “providing support to boost our British car industry”, increasing the threshold for the “luxury car tax” to £50,000 for EVs and providing another £1.3bn in funding for the electric car grant, extending it to 2030.
Nonetheless, the OBR forecast that the pay-per-mile charge and counterbalancing measures would reduce EV sales on average by a net 24,000 vehicles a year over the next five years.
Reeves said she was also extending the £3 bus fare cap, as well as freezing rail fares for the first time in 30 years.
The government will also remove a loophole that has allowed many taxis outside London to be free of VAT – meaning fares could rise if firms pass on the 20% charge to passengers. Reeves said she would “improve competition in our taxi industry by ending ride-hailing companies’ use of a discount scheme intended for coach tours”.
The move has been described by some as a “taxi tax” but was backed by Steve McNamara, the general secretary of the Licensed Taxi Drivers’ Association, as “a landmark moment for fairness and integrity in our industry”.
