Chancellor Rachel Reeves Signals Potential Increase in Mileage Allowance Rates
Millions of British motorists who use their personal vehicles for work purposes may soon benefit from higher tax-free mileage reimbursements. Chancellor Rachel Reeves has indicated she is actively reviewing the Approved Mileage Allowance Payment (AMAP) rates, which have remained frozen at 45p-per-mile for the first 10,000 business miles since 2011.
Outdated Rates Leaving Workers Out of Pocket
The current system allows employees to claim 45p-per-mile tax-free for the initial 10,000 miles driven for work purposes, with subsequent miles reimbursed at 25p-per-mile. An additional 5p-per-mile can be claimed for each passenger transported during work journeys. While companies may choose to pay higher rates, any amount exceeding the AMAP threshold becomes subject to income tax.
Motoring organizations and trade unions have consistently highlighted how the static 45p rate has failed to keep pace with escalating vehicle operating costs over the past fifteen years. With approximately 14 million private cars in the UK used for business purposes, the financial impact on workers has become increasingly significant.
Growing Pressure for Reform
During Tuesday's House of Commons session, Labour former minister Jim McMahon directly questioned the Chancellor about updating the mileage rates. He cited the case of Gemma, a social worker with over two decades of service, who reportedly pays more than £1,000 annually from her own pocket simply to perform her job duties.
"The 45p a mile rate set 15 years ago is nowhere near the true costs of running a vehicle today," McMahon stated. "Recently assessed at 67p a mile, that was before fuel costs rocketed in the last week."
Substantial Financial Burden on Workers
Research from the RAC Foundation in 2023 revealed that employees using their cars for work are typically £6,000 per year out of pocket due to the outdated reimbursement rates. Meanwhile, trade union Unison reported in 2022 that motoring expenses had surged by 39 percent since the 45p rate was originally implemented.
"Frozen mileage rates have shifted a heavy financial burden to workers for simply going about their jobs," commented Unison's assistant general secretary Jon Richards. "Out-of-date rates are effectively a clumsy stealth tax caused by political inaction, at a time when workers are struggling with soaring cost-of-living pressures."
Chancellor's Response and Future Considerations
In her parliamentary address, Chancellor Reeves acknowledged that "motoring costs have evolved significantly" since the current rates were established. She confirmed the Treasury would maintain its standard policy of reviewing all taxes ahead of fiscal events, while specifically noting this particular issue would receive her "very close interest."
"We're therefore looking at the issue and will consider the matter further in the usual way as part of a future fiscal event," Reeves stated, responding to calls from McMahon to expedite the review process given the ongoing cost-of-living crisis.
Union representatives welcomed the Chancellor's attention to the matter, with Richards noting: "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 adjustment to mileage allowance rates represents a significant development for millions of British workers who rely on personal vehicles for employment, particularly those in essential public services like healthcare, social work, and community care who frequently travel to meet clients and patients.
