Chancellor Freezes Fuel Duty, Extends 5p Discount Amid High Prices

Chancellor John Healey announced on Wednesday that fuel duty will remain frozen and the 5p per liter discount will be extended until July of next year, providing relief to drivers facing soaring pump prices.

The fuel duty, which was scheduled to be unfrozen for the first time in 16 years, will be kept at 52.95p per liter. The 5p cut, initially introduced in 2022 due to the crisis in Ukraine, has now been extended again.

Healey stated in his Budget address to the House of Commons that the government is extending these tax cuts for motorists through the winter and spring. "With the war in the Middle East still driving high fuel prices, I am extending these tax cuts for motorists through the winter and spring to July, supporting households, hauliers, and farmers," he said.

Additionally, the higher mileage rate for those using personal vehicles for work, such as care workers and engineers, will increase from 25p to 35p per mile. The standard mileage rate increase, introduced earlier this year, will also be made permanent.

Petrol and diesel prices have risen significantly this year, influenced by the conflict in the Middle East and the ongoing war in Ukraine. Diesel prices surpassed a record £2 per liter earlier this month, while average unleaded petrol prices have reached approximately £1.75 per liter, the highest in over four years. The RAC noted that 2026 is on track to be the second most expensive year on record for drivers.

A survey by the RAC indicated that 34% of drivers would prefer a cut in VAT on fuel over a reduction in fuel duty, compared to 29% who favored a fuel duty cut. Currently, VAT on road fuel is 20%, applied on top of the product price and fuel duty. Combined, fuel duty and VAT constitute 47% of the cost of a liter of unleaded and 43% of a liter of diesel, according to the RAC.

High fuel costs are impacting household budgets, with 65% of motorists reporting they are cutting back on other spending this month due to fuel prices, an increase from 61% in April. Furthermore, 47% of respondents are struggling with the cost of filling their vehicles, up from 39% in April.

RAC senior policy officer Rod Dennis commented that while the 5p fuel duty cut from the Ukraine war era is still in effect, it has not prevented price increases this year. He suggested that while an end to hostilities and a lower oil price would provide the most significant relief, tax policy remains within the government's control. Dennis added that a further fuel duty cut would offer relief at the pumps, and a VAT cut, which drivers narrowly prefer, is another option. He explained that a fuel duty reduction uniformly lowers the tax per liter, while a VAT cut would yield a larger cash saving on more expensive diesel.