Chancellor Rachel Reeves has announced a freeze on fuel duty until September 2026, but confirmed that a new 3p-per-mile charge for electric cars will be introduced from 2028. The freeze, the 16th consecutive year without a rise, maintains the current rate of 52.95p per litre for petrol and diesel. However, the temporary 5p cut introduced by former chancellor Rishi Sunak will be reversed in stages from September 2025.
The new electric vehicle excise duty (VED) will apply to fully electric cars at 3p per mile, with plug-in hybrids charged at 1.5p per mile. Reeves stated that the measure would help double road maintenance funding in England over the course of this parliament. The charge is expected to raise £1.1bn in 2028-29, rising to £1.9bn by 2030-31. Electric vans, buses, and HGVs will be exempt.
The Office for Budget Responsibility (OBR) estimated that the continued freeze and staggered reversal of the 5p cut would cost the Treasury an extra £2.4bn next year and £900m annually thereafter. However, it would reduce UK CPI inflation by 0.1 percentage points compared with a forecast rise in duty. The OBR also forecast that the pay-per-mile charge and counterbalancing measures would reduce EV sales by an average of 24,000 vehicles per year over the next five years.
To support the transition to electric vehicles, Reeves announced an increase in the luxury car tax threshold to £50,000 for EVs and an additional £1.3bn in funding for the electric car grant, extending it to 2030. She also pledged to accelerate the rollout of public EV charging and provide exemptions from business rates.
In other transport measures, Reeves extended the £3 bus fare cap and froze rail fares for the first time in 30 years. The government will also remove a VAT loophole for taxis outside London, which could lead to fare increases if firms pass on the 20% charge to passengers. The move was backed by Steve McNamara of the Licensed Taxi Drivers' Association as a step towards fairness.
