Chancellor John Healey has frozen fuel duty and extended the existing 5p-per-litre cut, offering motorists some relief as pump prices continue to climb.
The tax was expected to rise for the first time in 16 years. However, amid mounting pressure, Mr Healey confirmed in his Budget that fuel duty would remain at 52.95p per litre.
The 5p reduction, introduced in 2022 during the Ukraine crisis and initially intended to last only one year, will also remain in place until July next year.
Delivering 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 reduced red diesel to its lowest rate in more than 20 years.
‘With the war in the Middle East continuing to push fuel prices higher, I am extending these tax cuts for motorists through the winter and spring to July, helping households, hauliers and farmers.
‘For people who depend on their cars to work, including care workers and engineers, I am raising the higher mileage rate from 25p to 35p per mile. I am also making permanent the increase to the standard mileage rate introduced earlier this year.’
Chancellor John Healey has frozen fuel duty and extended the 5p discount as soaring pump prices put further pressure on drivers
Petrol and diesel costs have surged this year, driven by the war in Iran and continuing disruption linked to Russia’s invasion of Ukraine.
Diesel prices climbed above the £2-per-litre mark earlier this month, while average unleaded petrol reached about £1.75 per litre — its highest level in more than four years.
According to the RAC, that puts 2026 on track to become the second-most expensive year on record for motorists filling up, even though fuel duty has stayed at its current level since 2022.
Before Wednesday’s Budget, a survey by the motoring organisation found that 34 per cent of drivers would rather see VAT on fuel reduced than receive another cut to fuel duty.
By comparison, 29 per cent said they would prefer a reduction in fuel duty.
VAT is charged at 20 per cent on road fuel, calculated on top of the combined cost of the fuel itself and fuel duty.
Together, fuel duty and VAT account for 47 per cent of the price of a litre of unleaded petrol and 43 per cent of a litre of diesel, the RAC said.
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The survey of 1,208 regular UK drivers found that 65 per cent were cutting back on other spending this month because of high fuel costs, up from 61 per cent in April.
Almost half of those questioned — 47 per cent — said they were struggling with the cost of filling their vehicles, compared with 39 per cent in April.
RAC senior policy officer Rod Dennis said: ‘It is easy to forget that fuel duty is already lower than it was several years ago, after it was cut by 5p in the early stages 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.’
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