Prime Minister Keir Starmer has announced that the 5p fuel duty increase due to be introduced in September will be postponed until 2027.
The Government said the extension of the fuel duty freeze could save the average driver £120 between 2025 and the end of 2026.
Starmer postponed the increase in fuel duty to combat rising fuel costs due to the war in Iran.
According to the RAC, petrol prices have increased by 25.5p per litre since the start of the war, while diesel prices are up 25.7p per litre.
The Government also introduced a 12-month road tax holiday for hauliers to mitigate rising transport costs.
Hauliers will pay £1 at renewal, a saving of £600 for a typical heavy lorry or £912 for the largest vehicles.
Starmer said: “I know many are feeling the pressure of energy and fuel costs, and are worried about how the conflict in Iran will affect their finances.
“Because when global events drive up prices, it’s working people who feel it first.
“That’s why this Government is stepping in to keep fuel costs down for millions of drivers and putting money back in the pockets of working people.”
Chancellor of the Exchequer Rachel Reeves said: “I’m keeping taxes down for drivers and businesses – putting money in the pockets of millions of workers and cutting costs for farmers and hauliers.
“The war in Iran is pushing up fuel prices here at home but after strong growth at the beginning of the year, I am stepping in to protect people at the pump
“By protecting households and businesses we are building a stronger and more secure economy for Britain.
“That is the right economic plan.”
Reaction:
Paul Holland, managing director for UK/ANZ vehicle payments at Corpay, including UK brand Allstar:
“Fuel price volatility has plagued fleets for so long it risks being accepted as the norm, but it shouldn’t be.
“The Chancellor’s reported plans to scrap the planned 5p fuel duty increase is welcome news and will offer some much-needed breathing space for businesses already under pressure.”
“That said, the freeze doesn’t solve the underlying challenge that fuel remains one of the biggest operational costs for fleets.
“Our recent research of 300 UK SMB owners and directors who manage fleets of 4 to 20 vehicles shows that just 45% of businesses have meaningful visibility over what their fleet is actually spending, leaving the majority exposed when prices move.
“Businesses that will navigate these turbulent times most effectively are those using data to take control: tracking driver spending patterns, setting tailored spend limits, and acting on detailed insights.
“The tools exist – the priority now is putting them to work.”
Simon Williams, head of policy at the RAC:
“Drivers are struggling with the cost of filling up, especially now petrol has reached an Iran War high of 158.73p a litre, so the decision to keep the 5p fuel duty in place for the time being is very welcome.
“The Prime Minister’s announcement that duty won’t go up this year means a penny won’t go back on in September, followed by a further 2p in December.
“The big question is now: what will happen next year and will drivers be hit with the full 5p in one go in the spring, will a new phasing be agreed, or will the Government even abandon an increase altogether?”
John Cassidy, managing director at Close Brothers Motor Finance:
“The Government’s decision to postpone the fuel duty rise will provide some respite to motorists.
“Events in the Middle East means drivers have been feeling the pinch at the pumps at a time when the cost of motoring continues to soar, putting strain on household finances.
“With 42% of motorists stating that they have been worried about further petrol price rises, the announcement should go some way to alleviating financial stress.
“However, many will see this as papering over the cracks of much wider concerns, and will expect the Government to implement further measures to ensure drivers can afford the cost of driving – something that is essential to the daily lives of millions.”
