What Rachel Reeves said about fuel duty freeze

Addressing MPs at the dispatch box on Wednesday afternoon, the Chancellor said in reference to fuel duty: 'Under current plans, the temporary 5p cut to fuel duty that was introduced during the pandemic will come to an end in April and fuel duty will be uprated in line with inflation.

'But I know the cost of travelling to and from work is still too expensive.  And so I am extending the 5p cut until September 2026.'

This will see the current levy on petrol and diesel retained at 52.95p a litre until September.

But the Budget Document states that it will 'gradually return' to March 2022 levels (57.95p) by March 2027. 

The document also outlines that the planned increase to fuel duty in line with inflation for 2026-27 will also be cancelled.

This essentially means fuel duty will stay frozen at no higher than 57.95p for another two years - taking the freeze into a 17th term. 

Reeves also told MPs that she will make it a legal requirement for filling stations to be more transparent with their pricing from spring next year. 

'Because I know changes in wholesale prices are not always passed on to motorists, I am brining in new rules to mandate petrol forecourts to share real-time price rises through a new Fuel Finder, empowering drivers to find the cheapest fuel, calling out rip-offs and strengthening competition, saving the average household £40 a year,' she said.

The combined measures are expected to save families £89 next year compared to previous plans. 

AA president Edmund King said the continuation of the freeze 'removes one of the big concerns for millions of drivers, their families, and businesses'.

He added: 'With fuel still accounting for a significant share of household spending, maintaining the 5p freeze will save drivers £3.30 a tank.

'For workers, who are dependent on their cars to commute and fill up twice a month, this keeps £6 to £7 in their pocket to battle other costs.'

Steve Gooding, director of the RAC Foundation, said: 'For all the furore over the pence per mile charge for electric vehicles it is the defrosting of the freeze on fuel duty and the promise of further index-linked increases to come that will have been greeted with concern by the drivers of the 30 million cars on the UK's roads that run on petrol or diesel, and for whom the pump price of fuel remains a significant element of their hard-pressed household budgets.'

Freezing fuel duty: what it means for YOU 

What does the freeze and retention of the 5p cut really mean for you and your outgoings when you fill up at forecourts?

Had Rachel Reeves scrapped the 5p cut with immediate effect on Wednesday, the cost of a litre of both petrol and diesel would have increased by 6p, inclusive of an extra penny in VAT.

Based on Tuesday's (26 November) average unleaded price of 137.2p, this would have seen a theoretical jump to 143.2p.

Diesel would have risen from 146.2p to 152.2p with the 6p hike.

This would have put the average price of a litre of both fuels higher than it was when Rishi Sunak first introduced the 5p cut to tackle rising prices resulting from Russia's invasion of Ukraine. 

The extension of the cut until September will save drivers of the average family car with a 55-litre fuel tank £3.30 each time they fill up.

Over the course of a year, based on average annual mileage of 7,000 miles and the average petrol car returning 36mpg, drivers are set to save in the region of £53 on their fuel receipts.

Freezing fuel duty: what it means for the Exchequer

The freeze on fuel duty rates until September 2026 is estimated to cut tax receipts by £2.4billion next year and £0.9billion in the medium term, the OBR said in its report leaked in error ahead of the Budget statement.

However, it caveated: 'The fuel duty freeze extension that we incorporated into our economy forecast is slightly different to the final policy decision. The Government informed us of the final policy (freeze until Sep 26) after the deadline for including it in the final economy forecast. Incorporating the final policy would have had less than a 0.1 percentage point impact on our inflation forecast.’

The OBR forecasts that fuel duty receipts will decline to around £12billion - around half the level today - in the 2030s in real terms before receipts approach zero by 2050. 

Fuel duty has remained frozen for 15 consecutive years and is now a third lower in real terms than it was in 2010.

Independent think tank Resolution Foundation says the cumulative cost to the exchequer of the long-running freeze and 2022 cut to fuel duty is £130billion.

It described this as a 'colossal sum given the struggle governments have had to balance the books during that time'.

How much of what we pay at the pumps is tax?

Based on today's petrol price at 137.2p, fuel duty at 52.95p accounts for almost two fifths (39 per cent) of what drivers pay at the pump.

With VAT at 20 per cent also charged on road fuels, total taxation on petrol amounts to a whopping 56 per cent of the retail price.

For diesel, currently at an average of 146.2p across the UK, fuel duty accounts for 36 per cent of every litre bought, while VAT bumps the tax total to 53 per cent.

Therefore, despite no increase to fuel duty in the next 10 months, well over half of what drivers are paying at the pumps goes direct to the Treasury.

In cash terms, that's around £42 of the £76 total bill every time the tank of an average petrol-powered family car (with a 55-litre tank) is filled up in Britain.

For diesel owners, £42 of an average £80 visit to a forecourt will go to the Exchequer.

We already pay higher taxes on fuel than most European drivers

Despite the fuel duty freeze and extension of the 5p-a-litre cut, UK drivers are still paying some of the highest taxes on road fuels against other European nations.

Taxation of fuel across Europe is calculated differently to how it is in the UK.

The European Union's (EU) Energy Taxation Directive requires Member States to levy a minimum excise duty of €0.36 (approximately 31p) per litre on petrol. However, many have much higher rates than this.

A recent report published by Tax Foundation Europe found that it's only motorists in Malta who are charged the minimum excise duty rate, though drivers in Bulgaria and Hungary currently benefit from low levies on unleaded.

At the opposite end of the spectrum, the Netherlands has the highest petrol taxation at €0.79 a litre (approx 69p), followed by Italy and Denmark at €0.71 (approx 62p).

With fuel duty remaining at 52.95p (converting to approx €0.62), the UK still has the tenth highest levy on petrol.

As for diesel - which is far less popular on the continent - the EU sets a slightly lower minimum excise duty of €0.33 a litre (approx 29p).

Even with the fuel duty cut, the UK's taxation on diesel fuel is almost the highest against European neighbours, with the 52.95p levy translating to €0.62.

The most expensive country is Italy at €0.63 per litre (approx 55p) and Belgium at €0.60 (approx 52p).

While most EU countries levy a lower excise duty on diesel than on petrol, only the UK and Belgium levy the same rate of tax on the two fuels.

What's next? All eyes on Fuel Finder scheme to tackle 'rip-off fuel retailers'

In spring 2026, the Government will launch its Fuel Finder scheme that will force all fuel stations to log changes to their pump prices with an official database. 

Operators have to notify the scheme within 30 minutes - almost in real-time - when they've increased the cost at their sites.

It will mirror what has been introduced in other European countries for years, which has not only provided pump-price transparency but triggered greater competition and lower prices.

This comes against a background of the fuel trade apparently ignoring criticism from the Competition and Markets Authority that margins on the price of petrol and diesel are 'consistently bloated'.

The AA pointed to this being a case in point with average fuel prices 'surging' ahead of the Autumn Budget.

The motoring group said the fuel trade had 'beaten the Chancellor to a fuel duty hike' by hiking pump prices in the days in the lead-up to her statement.

Average petrol prices jumped by half a penny over the weekend and diesel went up a penny also.

Petrol started November at 135.4p a litre with diesel at 143.1p though have risen to 137.2p and 146.2p on average respectively.

'As drivers trembled at the prospect of a pump price surge, coming from a fuel duty increase in today’s Budget, the fuel trade has beaten the Chancellor to it with its own hike in road fuel costs,' said Luke Bosdet, the AA’s spokesman on pump prices.

'The Chancellor won’t be thanking the fuel trade for ramping up the political jeopardy of a fuel duty increase.'

Fuel Finder is expected to reveal to drivers the location of competitive and much cheaper forecourts. This in turn will pressure the expensive ones to bring down their prices or risk losing customers.

The scheme also boosts the profile and appeal of those fuel stations looking to use lower pump prices to draw customers to their shops. In effect, it offers free marketing.

The RAC's Simon Williams said: 'The introduction of the long-awaited Fuel Finder in early 2026 will also be a big moment – for the first time, all petrol stations will need to report their prices allowing customers to find the cheapest fuel wherever they are.' 

Gordon Balmer, executive director of the Petrol Retailers Association representing hundreds of independent and supermarket forecourts across the UK, described the Fuel Finder scheme as 'optimistic at best'. 

He said petrol retailers are 'very concerned' that the forthcoming introduction of the scheme will 'create new administrative burdens upon operators already facing a challenging cost environment'.