Fuel duty to rise from next year

Fuel duty rates for diesel and petrol have been frozen for a further five months beyond the current fiscal year, including the temporary 5p cut, Rachel Reeves has announced in her autumn budget.

But leaked documents from the Office for Budget Responsibility (OBR), which were accidentally published prior to the chancellor’s speech in the House of Commons, revealed that the freeze would only remain until September 2026, at which point the government will begin to reverse the 5p cut in a staggered approach.

From April 2027, the OBR forecast revealed that the government will then increase fuel duty rates annually by the retail price index (RPI) measure of inflation. This has since been confirmed by the Treasury’s own documentation.

The plans represent the first increase in fuel duty in 16 years.

“The government has announced a five-month freeze to fuel duty rates until September 2026 at which point it states that the five pence cut first introduced in 2022 will be reversed through a staggered approach,” the leaked OBR report revealed.

“From April 2027, the government has stated that the fuel duty rates will then be uprated annually by RPI.”

The OBR report further stated that from next September: “the ‘temporary’ 5p cut to rates introduced at spring budget 2022 will be unwound in three stages.

“The cumulative cost of freezing fuel duty rates between 2010-11 and 2026-27 and the 5p cut, relative to the stated policy that they will increase in line with RPI inflation, has risen to £120 billion, after factoring in the negative impact on demand for fuel from higher duty rates.”

The Treasury’s own budget document, published later, confirmed that the government would “extend the 5p cut in rates to 31 August 2026, then increase by 1p from 1 September 2026, 2p from 1 December 2026, and 2p from 1 March 2027”.

The news comes in spite of a warning last week by trade group Logistics UK, suggesting that a rise in fuel duty would have a significant inflationary impact, as well as concerns raised by the Road Haulage Association (RHA) that a hike in the tax would further increase the cost of living.

In the opening remarks of her budget speech, Ms Reeves said the leak of the OBR’s report was “deeply disappointing”.

On fuel, she said: “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 that the cost of travelling to and from work is still too expensive.

“And so I am extending the 5p cut until September 2026. And because I know that changes in wholesale prices are not always passed on to motorists, I am bringing in new rules to mandate petrol forecourts to share real-time price rises through a new Fuel Finder [scheme] – empowering drivers to find the cheapest fuel, calling out rip-offs and strengthening competition, saving the average household £40 a year.”

Commenting on the fuel duty hike following the chancellor’s speech, Logistics UK’s acting chief executive Kevin Green said: “Instead of nurturing the green shoots of economic recovery, the government risks stamping them out. The increase in fuel duty announced in the budget will mean hundreds of millions in increased taxes for logistics businesses, much of which will be passed onto households and businesses, as well as hitting motorists directly – fuelling inflation across the economy.

“It is a short-sighted decision that fails to appreciate logistics’ role in the economy – logistics costs are embedded in all products from food and medicines to construction materials and consumer goods: increasing logistics taxes mean increased costs for everyone.

“Logistics businesses already pay around £5.5 billion a year in fuel duty – increasing the tax burden on our industry shows a disregard for a sector that generates £170 billion for the UK economy, employs over eight per cent of the nation’s workforce and is key to the government’s growth agenda. We urge the chancellor to reconsider this decision at the earliest possible opportunity, or risk an inflationary impact right across the economy in the spring.”

The RHA said that the chancellor’s decision to reverse the 5p cut on fuel duty and increase rates thereafter would be a “hammer blow for many small businesses”.

“Whilst we welcome today’s decision to continue the freeze on fuel duty until next September, as independent economic research shows, a 5p rise in fuel duty would increase household living costs by £1.9bn per annum, pushing up the price of everyday essentials,” the association siad.

“We will continue to urge the government to rethink these fuel duty increases which loom large for households struggling with the cost of living and for the many small businesses who keep our supply chains moving.”

It warned that increases in employment costs owing to the increases in the minimum wage and national living wage also announced in the budget would put further pressure on operators “against a challenging economic backdrop and wafer-thin margins”. This, it said, would lead to lower investment and fewer opportunities for young people.

The RHA continued: “We are deeply concerned that the government have committed to a new high-value business rates multiplier for properties with rateable values of £500,000. This will set the multiplier 2.8p above the national standard multiplier from April next year.

“Though this is aimed at large multinationals, it will have the unintended consequence of dragging large warehouses across the country into a new rate, driving up inflation.

“Logistics premises require a larger footprint but offer a relatively low return on land values. The proposed changes will result in higher prices for the transportation of goods.”

The RHA welcomed, however, changes to capital allowances from January 2026 which it said would support new investment in businesses that do not qualify for full expensing relief, such as those with leased assets – as well as significant planning reforms and the government’s fresh commitments on road infrastructure, which included a further £891 million for the Lower Thames Crossing and a £2 billion annual budget for pothole repair by local authorities.

“We welcome the funding £16.55 million over three years from 2026-27 to boost trade between Northern Ireland and Great Britain to help businesses navigate the Windsor Framework,” added the RHA.

“We await more details on what this will mean in practice for hauliers and urge the government to learn lessons from the inefficiencies of the Trader Support Service, as set out in the Murphy Review.”

Gerry McCaig, chief operating officer of Nexus Rental, said that while the extension to the current fuel duty freeze would be welcomed by businesses, the subsequent rise would push up vehicle hire costs.

“The rise in fuel duty will have an indirect impact on the cost of vehicle and plant hire for businesses across the UK,” he said.

“As one of the leading strategic rental partners, we work closely with suppliers and customers and understand the impact this will have. Simply put, higher fuel costs will inevitably lead to increased hire rates.”

Simon Williams, head of policy at automotive services provider RAC, said: “Drivers will be relieved the chancellor has decided to keep the 5p duty cut in place for now as it saves them more than £3 a tank. But this relief will be very short-lived given the staggered increase from next September.

“Without the discount, drivers would still be paying more for a litre of petrol than they were prior to Russia’s invasion of Ukraine in February 2022 which sent pump prices rocketing to record levels.

“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.”

The Treasury’s budget document, which is now available here, also reveals that an electric vehicle excise duty (eVED) is set to be introduced in April 2028. However, while electric cars will be affected, “other vehicle types, such as vans, buses, motorcycles, coaches and HGVs, will be out of scope of eVED when it is introduced, with the transition to electric power for these vehicle types being currently less advanced than for cars.”

However, the Treasury also confirmed: “The government will uprate vehicle excise duty (VED) for HGVs in line with the RPI from 1 April 2026. The government will also uprate the HGV [road user] levy in line with the RPI from 1 April 2026.”

Paul Holland, managing director for UK/ANZ Fleet at Corpay, a major provider of fuel cards including UK brand Allstar,  said the budget was: “every bit as tough as expected. Higher taxes, reduced growth forecasts and a new mileage tax for electric vehicles all point in the same direction. Costs are rising again and the businesses keeping the country moving are being asked to absorb even more pressure.

“Nothing announced today makes life easier for fleets or small businesses. Fuel duty relief is still absent, with only a five-month freeze before staged increases begin from 2026. Incentives for cleaner alternatives such as HVO are missing…

“The budget also highlights a wider problem: rising taxes across the board. The freeze on income tax thresholds has been extended to 2031, which means higher personal tax bills. That does not just hit households. It pushes up wage expectations and operating costs for every business that relies on drivers, technicians and frontline staff.

“We must also recognise that lower economic growth has consequences for fleets. Every fraction of a percentage lost means less investment, less confidence and fewer businesses able to modernise their vehicles. Yet the budget offers no new measures to help commercial operators upgrade vans, adopt cleaner fuels or manage rising energy costs.”

Mike Nakrani, CEO of fleet electrification specialist VEV, said: “The decision made in the budget to exclude electric commercial-fleet vehicles from eVED is a smart and welcome move. It recognises the essential role fleets play in the UK economy and removes an unnecessary cost barrier for operators looking to go electric.

“The government has also made real progress with the Depot Charging Scheme, which is already helping fleets well along the path to installing reliable, high-power charging at their depots. But to unlock the full potential of commercial e-fleets, this support must go further.

“Expanding the scheme, in addition to the measures speeding up grid-connection processes and backing smart-energy solutions, would give businesses the confidence to electrify at scale.”