Relief at Budget fuel duty freeze amidst wider tax rises
Widespread relief at the government’s decision not to raise fuel duty in last week’s Autumn Budget was tempered by concern of additional costs to road transport businesses resulting from a variety of the other fiscal measures announced, which trade groups warned could adversely impact the sector.
The chancellor Rachel Reeves allayed widespread fears of a major fuel tax hike in her Budget speech issued on 30 October – announcing instead that she would continue the freeze on fuel duty and maintain the temporary 5p per litre cut for a further year.
But concurrent rises in vehicle excise duty (VED) and the HGV road user levy, as well as employers’ national insurance contributions, were among the perceived downsides of the Treasury’s fiscal package identified by key industry figures.
Responding to the Budget announcement, David Wells OBE, chief executive of Logistics UK, said the decision to freeze fuel duty was welcome news for the logistics sector against a backdrop of “increasing business failures over the last year”, but warned that the “tax grab” in other areas could stifle growth.
He said: “Since the new government took office, Logistics UK has consistently pressed to keep fuel duty down, to give logistics businesses headroom to invest and to manage inflationary pressures. It is therefore a significant victory for the logistics sector that our messages were heard by the government, as well as the Office of Budget Responsibility, which has acknowledged that rising fuel duty would impact inflation in the economy.
“The vast majority of the UK’s logistics businesses are SMEs so maintaining the current five pence per litre fuel duty cut for another year will help them keep their heads above water, but the huge increase in employment costs for businesses, primarily though employer national insurance, will have a damaging effect on the industry and its potential to drive growth across the whole economy.
“Increases in business rates, VED and the HGV road user levy will also be hard for businesses to swallow. The logistics sector operates on very narrow margins – during the 12 months to the end of July 2024, more than 500 logistics businesses went bust and we are worried that the number of businesses that cease trading in the coming months will continue to accelerate due to these much higher costs.”
Mr Wells added: “The chancellor also announced £100 billion in capital spending investment over the next five years and if this is directed towards the transport and energy infrastructure needed by our sector, this would improve its efficiency and boost UK productivity.
“However, our members will have to wait for the forthcoming Spending Review, Infrastructure Strategy and the final Industrial Strategy, to better understand the government’s plans.
“Maintaining the Plug-in Van Grant, and funding it by £120 million in 2025/26, is also good news for logistics businesses as ending this grant for the purchase of electric vans would have significantly increased the cost of the net zero transition.
“The extra £500 million announced for road improvements will be welcomed by businesses currently facing increasing maintenance bills as a result of damage caused by the state of the UK’s roads, but it is disappointing the government has delayed Road Investment Strategy 3 (RIS3) by a year to 2026/27 and cancelled several road projects on the Strategic Road Network.
“Government appraisal of schemes when assessing affordability needs to recognise the wider direct and non-direct economic value of enabling efficient supply chains.”
The Road Haulage Association (RHA) also welcomed the fuel duty freeze, but said that further announcements in the Budget presented “a mixed picture for haulage, coach and van businesses”.
“The continuation of work on major strategic roads – the A47, A57 and A75 – is welcome, but we are concerned about delays and cancellations to other significant road projects such as the Lower Thames Crossing and the A303 Stonehenge tunnel,” it said.
“Economic growth will only be achieved with investment in the infrastructure to support it.”
It also welcomed the additional £500m in the local road maintenance budget allocated for potholes, though warned that long-term road maintenance funding for local authorities was vital to enable improvements to the planning of essential repairs.
“We are disappointed that the HGV VED rate and the HGV Levy will rise with RPI from 1 April 2025,” the association continued.
“This will add further cost pressure on vehicle operators at a time when the industry is facing… other rising costs.”
The RHA warned that proposed business rates changes could unfairly penalise logistics businesses operating large warehouses, and said the planned rise in employers’ national insurance contributions to 15 per cent in April would “make hiring staff and creating jobs harder”.
“More than 95 per cent of the haulage industry are small and medium sized companies who cannot afford more costs at a time when insolvencies in our sector are at a record level,” it said. “We want the policymakers to work with us to minimise the financial burden placed on businesses, not add to them. We therefore welcome the Chancellor’s commitment to increase the employment support allowance for small businesses by a record amount, more than doubling it from £5,000 to £10,500.”
Sean Turner, senior manager and transport and logistics sector specialist at Menzies LLP, the business advisory and accountancy firm, said the Budget had delivered a mixed picture for the sector.
“On the positive side, the freeze in fuel duty is a relief for road haulage businesses. Any increase would have inevitably rippled through the entire supply chain, pushing up costs and impacting both businesses and consumers. By keeping fuel duty steady, the government has shown awareness of the sector’s reliance on stable fuel pricing.
“However, the rise in capital gains tax, along with upcoming changes to business asset disposal relief, has raised concerns among the many owner-managed and family-run businesses within the sector.”
He said that a rise in the business asset disposal relief tax rate could make the process more costly for business owners considering succession or sale, potentially impacting retirement planning and the overall appeal of family business continuity.
“These changes are substantial, especially for a sector that traditionally values continuity through family or close management transitions,” he warned.
“The additional increases to employment costs through the national living wage and employer national insurance contributions will also place pressure on businesses already navigating a competitive labour market and intensifying operational expenses.”
The Vehicle Remarketing Association (VRA) said its sector would feel a “hugely increased burden” as a result of the Budget.
“It’s arguable that people elect a Labour government in the expectation they will increase taxation to fund higher spending on public services,” said Philip Nothard, VRA chair.
“What feels unusual in this Budget is both the sheer amount – £40bn is undoubtedly a lot of money – and the degree to which businesses are being asked to foot the bill.
“Remarketing remains a people-intensive sector and the cost of employment will go up quite substantially as a result of moves such as higher employers’ national insurance. For major dealer groups, that alone could easily mean an increase approaching seven figures.
“This places pressure on remarketing businesses to either grow or cut costs. If the Labour government can deliver on its investment promises, perhaps this higher tax burden will be absorbed but the growth figures mentioned by the chancellor were only moderate, and cost reduction looks like much the more likely solution.”
But the VRA welcomed a range of other measures, Mr Nothard added, including the £500m allocated to potholes and £2bn to be spent on the zero-emissions vehicle manufacturing sector and supply chain.
“There are quite strong signs that the Labour government ‘gets’ the motor industry and wants to play a positive role in supporting everyone from manufacturers to motorists, but they have very much now created a situation where if they want to benefit from the increase tax burden, they need to deliver on their growth promises,” he said.
Meanwhile, fuel distributor Certas Energy acknowledged the relief customers would be feeling at news of the fuel duty freeze, but said the government had “missed a trick” in not making sustainable fuels a more viable option.
Bryan Main, managing director of mobility at Certas Energy, said: “While companies running HGV fleets can’t easily switch to electric to avoid the cost and emissions of diesel, they can use HVO (hydrotreated vegetable oil), a drop-in alternative to diesel that reduces emissions by up to 90 per cent compared to standard diesel and can be used without any modification to the vehicle.
“Many of our customers want to use HVO to lower their emissions but find the current price premium a challenge. Today’s budget was an opportunity to make sustainable fuels such as HVO more competitive, by lowering fuel duty on them.
“It could have had a big impact on the UK’s green transition, decarbonising road transport faster and more smoothly. I think that opportunity has been missed.”
Barney Goffer, UK product manager at telematics specialist Teletrac Navman, commented: “The government was very clear that this was going to be a tough budget with more taxation than previously mooted and it was.
“While the frozen fuel duty is a pleasant surprise, the new regulations around national insurance contributions (NIC) are going to be a challenge for many fleets….
“While the decision for employers to pay NIC on anything over £5,000 when previously it was £9,100 could help raise a large amount, it means increased pressure for fleets, especially the transport sector which is already running on low margins to absorb.
“The obvious thing to do would be to pass the rise in tax onto the customer but in a highly competitive transport sector there’s always someone willing to run at even lower margins.”
