Budget 2025: Rachel Reeves provides major update on fuel duty amid fears drivers could see costs skyrocket

Fuel duty has been repeatedly frozen at 5p since 2011, with the current rate for standard petrol and diesel being 52.95p per litre.

But as more cars have become electric due to the Zero Emission Vehicle mandate push, the Chancellor has been under growing pressure to address rapidly falling tax receipts.

Ms Reeves told Parliament: "I know that the cost of travelling to and from work is still too expensive, so I am extending the 5p cut until 2026. I am bringing in new rules to mandate petrol forecourts, empowering drivers to find the cheapest fuels, saving the average household £40 a year."

According to Treasury figures released in October, it found that fuel duty income between April and September this year totalled £12.2billion, down £26million from the same period a year earlier.

But in the latest Office for Budget Responsibility report, it stated that extending the fuel duty freeze would cost the Government £2.4billion next year.

However, this would be partly offset by new pay-per-mile car taxes coming into effect in 2028.

The OBR detailed: "Other tax changes raise £11billion by 2029-30. These include a new mileage-based charge on electric and plug-in hybrid cars from April 2028 at around half the fuel duty rate paid by drivers of petrol cars (raising £1.4billion).

"These tax rises are partially offset by a further freeze to fuel duty rates until September 2026, which costs £2.4billion next year and £0.9billion in the medium term."

Responding to the fuel duty freeze, Edmund King, AA president, said: "The Budget has put drivers at a fork in the road with the Chancellor announcing major tax proposals for EV owners.

"Drivers fully understand that the Government needs to get the balance right between raising cash for roads investment, while ensuring it doesn't slow down the transition to electric cars in order to meet environmental targets."

He added that today's Budget signals a "huge moment in the history of UK motoring". "We will work with the government to ensure that whatever people drive, they will be treated fairly," Mr King shared.

Earlier this week, campaigners took a petition to Downing Street containing the signatures of more than 152,000 drivers, calling for fuel duty to be cut or frozen.

The campaign had called on the Chancellor to leave fuel duty alone with Howard Cox, founder of FairFuelUK, warning that removing the benefit would be a "political disaster" for Labour.

But responding to the freeze extension, Mr Cox said: “Our months of lobbying in the lead up to the Winter Budget seem to have paid off. Drivers, especially those who fill up with diesel, remain the highest taxed in the world, but it would be churlish not to thank the Chancellor for listening in her second Budget to her own MPs, who have received thousands of calls from their FairFuelUK supporting constituents to keep this regressive tax frozen.

"It's time the Labour party lost the anti-driver label, and at last see private road user transport as a stimulus to delivering economic growth, not the ill-informed belief trumpeted by Ed Miliband that they are responsible for climate change."