Millions of UK motorists are set for a welcome financial reprieve after the Labour government confirmed it will extend a key fuel duty cut. The decision, announced by Chancellor Rachel Reeves ahead of the Autumn Budget, will save the average car driver £49 next year compared to previous fiscal plans.
Budget Relief for Motorists
The government has committed to extending the temporary 5p cut in fuel duty until the end of August 2026. This policy, initially introduced in response to soaring prices after Russia's invasion of Ukraine, will now continue to offer relief at the pumps. Following this extension, duty rates will gradually return to their early 2022 levels.
In a significant move for household budgets, the government has also confirmed that a planned inflation-linked increase for 2026-27 will not take place. Instead, fuel duty rates will be uprated by the Retail Price Index (RPI) from April 2027 onwards.
Impact on Inflation and Living Costs
The economic implications of the freeze were detailed by Dan Tomlinson in response to a parliamentary question from Sammy Wilson, the Democratic Unionist Party MP for East Antrim. Wilson had asked the Chancellor to review fuel duty rates in the context of inflation and the cost of living.
Tomlinson stated that pump prices are currently at their lowest levels since 2021. He cited analysis from the independent Office for Budget Responsibility (OBR), which forecasts that the fuel duty freeze extension will reduce Consumer Price Index (CPI) inflation by 0.13 percentage points in the 2026/27 financial year.
The OBR's Autumn Budget 2025 forecast assessed the impact of all government policy measures, concluding that Budget decisions collectively are expected to reduce CPI inflation by 0.4 percentage points in 2026/27.
A Strategic Economic Decision
The Chancellor emphasised that the decision was taken with a clear priority: reducing inflation. Reeves instructed government departments to ensure their Budget policies supported price stability and long-term growth.
This approach underscores the government's view of fuel duty as a significant factor for both household finances and broader business costs. As stated in the response to MPs, decisions on fuel duty rates are made at fiscal events, with careful consideration of their impact on the economy.
For now, drivers across the country can factor in the continued savings as the government seeks to ease wider price pressures.
