Fuel duty freeze to cost £750m

After much speculation, and pressure on the government to act on the cost of living, chancellor Rachel Reeves has now extended the temporary 5p fuel duty cut for four months from 1 September.

In another u-turn the government has succumbed to pressure and will hold off on scrapping the 5p cut in fuel duty until the new year. This will cost £750m to the taxpayer for the four-month period.

At the 2025 Budget last November, Treasury costing documents showed abolition of the 5p freeze would cost £2.37bn in 2026-27, although the tax cost was due to drop over time to £855m for years thereafter.

Rachel Reeves blamed ‘the war in Iran… pushing up fuel prices here at home’, on the decision not to scrap the cut. 

The government stated the decision would save drivers £120 by the end of the year.

Announcing the measure during Prime Minister’s Questions (PMQs) in parliament, Keir Starmer said: ‘This is possible because of the decisions taken by the chancellor… she will set out further action tomorrow.’

The policy was originally introduced by former Conservative chancellor Rishi Sunak in the Spring Statement in March 2022 as part of pandemic recovery measures and was always designed to be temporary. When it was announced on 23 March, it came into effect the same day.

The announcement to extend the freeze came as Keir Starmer faced criticism over plans to water down sanctioned imports of diesel and jet fuel refined from Russian oil in third countries such as India.

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