Petrol and diesel drivers to see prices soar as Rachel Reeves sets deadline for fuel duty hike
Petrol and diesel drivers are being warned of new changes that could see them pay more for fuel in the coming months after Chancellor Rachel Reeves’ Budget.
The Chancellor unveiled the Autumn Budget in November and outlined the Government’s spending plans over the next fiscal year, which included a number of key changes for motorists.
One of the biggest changes was the introduction of pay-per-mile car taxes for electric car owners in the form of the new Electric Vehicle Excise Duty (eVED), which will launch in 2028.
Another of the key measures introduced by Rachel Reeves was the extension of the five pence per litre cut to fuel duty, which surprised many.
Labour will extend the fuel duty cut until the end of August 2026, after Chancellor Reeves previously confirmed that the scheme would expire in March 2026.
The cut was first introduced in 2022 in response to soaring petrol and diesel prices, stemming from the Russian invasion of Ukraine, prompting the Government to act.
While the reduction was extended by the Chancellor, the rate of fuel duty will slowly return to levels last seen in March 2022.
The 5p fuel duty cut will be reversed in three stages: 1p on September 1, 2026, 2p on December 1, 2026, and 2p on March 1, 2027.
Chancellor Rachel Reeves confirmed changes to the rate of fuel duty in last year’s Autumn Budget
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PA
While the Budget outlined that the planned increase in line with inflation would take place, fuel prices are likely to increase once the duty relief is removed.
At present, drivers are paying an average of 132.23p per litre for unleaded petrol and 141.16p for diesel, with RAC Fuel Watch forecasting that prices will continue to fall.
Some supermarkets, including Asda and Morrisons, are already selling petrol for less than £1.30 per litre on average, while the “Big Four” supermarkets are charging less than £1.40 for diesel.
The Office for Budget Responsibility noted that the extension to the 5p fuel duty cut would cost £2.4billion in 2026-2028.
The rate of fuel duty has remained frozen since 2010-2011 at a staggering cost of £120billion to the Government.
Forecasts from the OBR stated that fuel duty revenue is projected to decline from around 0.7 per cent of GDP to 0.1 per cent in the two decades to 2050-2051.
Experts have highlighted that the changes to fuel duty are necessary to account for the falling revenue from petrol and diesel sales.
As more drivers switch to electric vehicles, sales of petrol and diesel will continue to decline, forcing the Government to act, as seen with the introduction of the eVED.
Petrol and diesel prices peaked across the UK in the aftermath of the Russian invasion of Ukraine in 2022
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PAThe Electric Vehicle Excise Duty scheme will see electric cars charged three pence for every mile driven, while hybrid owners will have to pay 1.5p per mile.
Hybrid vehicles risk being taxed twice just to stay on the road, through the 1.5p per mile charge, in addition to fuel duty for the petrol or diesel powertrain.
The OBR forecasts that the mileage-based charge is estimated to raise around £1.4mbillion per year by 2029-2030.
Chancellor Rachel Reeves included a huge £1.3billion boost for the Government’s Electric Car Grant, bringing the total funding for EV discounts to almost £2billion.
