Chancellor Rachel Reeves Signals Potential Increase in Mileage Allowance Rates
Chancellor Rachel Reeves has indicated that the government is actively considering raising the Approved Mileage Allowance Payment rates for employees who use their personal vehicles for work purposes. This potential policy shift comes in direct response to what Ms Reeves described as a "significant" escalation in driving costs over recent years, which has left many workers financially disadvantaged.
Current System and Proposed Changes
The Approved Mileage Allowance Payment system currently permits employees to claim 45 pence per mile tax-free for the initial 10,000 miles driven for work-related activities. This rate, which is intended to cover comprehensive vehicle running expenses including insurance, servicing, and general upkeep, has not been revised since 2011. For mileage exceeding 10,000 miles, the claimable rate drops to 25 pence per mile. Additionally, an extra 5 pence per mile can be claimed for each passenger transported during work journeys.
While companies retain the discretion to reimburse their staff at higher rates, any amounts exceeding the official allowance may be subject to income tax. Ms Reeves made her remarks during a session in the House of Commons, following sustained campaigning by trade unions who argue that their members, particularly in sectors like social care, are routinely left out of pocket when driving to meet clients or perform job duties.
Union Campaigns and Worker Testimonies
The Chancellor's announcement was prompted by direct questioning from Labour former minister Jim McMahon, who highlighted the case of Gemma, a social worker with over two decades of service, who reportedly incurs more than £1,000 annually in personal costs to perform her job. Trade union Unison has been a vocal advocate for updating the mileage rates, noting in 2022 that motoring expenses had surged by 39% in the decade since the 45 pence rate was established.
Supporting this view, the RAC Foundation reported in 2023 that workers using their cars for employment are, on average, £6,000 per year out of pocket due to the outdated reimbursement rates. Mr McMahon welcomed the Chancellor's statement, emphasising that the current 45 pence rate "is nowhere near the true costs of running a vehicle today," recently estimated at 67 pence per mile even before recent fuel price spikes.
Chancellor's Commitment and Future Outlook
Ms Reeves clarified that any adjustments to the mileage allowance would likely be implemented as part of a future budget or fiscal statement. She stated, "Whilst the approved mileage allowance payment rates have not changed since 2011, I recognise that motoring costs have evolved significantly and it's an important issue for many people who claim motoring expenses. We're therefore looking at the issue and will consider the matter further in the usual way as part of a future fiscal event."
She further assured that this issue remains a priority, noting, "We've got a standard Treasury policy of keeping all taxes under review ahead of fiscal events, but this is one area I will be keeping a very close interest in."
Industry and Union Reactions
In response to the announcement, Jon Richards, Unison's assistant general secretary, expressed cautious optimism. He remarked, "Frozen mileage rates have shifted a heavy financial burden to workers for simply going about their jobs. Out-of-date rates are effectively a clumsy stealth tax caused by political inaction, at a time when workers are struggling with soaring cost-of-living pressures."
Richards added, "People on the frontline in essential public services who have to use their own cars for work are thousands of pounds out of pocket. An increase in the rate is long overdue and urgently needed, so workers aren't subsidising employers from their own pockets. It's good the Chancellor is listening and has taken the issue on board."
The potential revision of mileage rates underscores the government's acknowledgment of the financial strains faced by employees reliant on personal vehicles for work, particularly amid ongoing cost-of-living challenges. Stakeholders will be closely monitoring developments as the Treasury continues its review ahead of the next fiscal event.
