Reeves looks at legacy 45p mileage rate with ‘close interest’

After being frozen 15 years ago by then chancellor George Osborne under the coalition government, chancellor Rachel Reeves is now considering revisiting the excessively low rate of approved mileage allowance payment (AMAP) rates, currently set at 45p.

If rates had kept with inflation, the AA estimated the figure should be 67p per mile.

At Treasury questions in parliament earlier this week, there was a heated contribution from the MP for Oldham, with Treasury minister Dan Tomlinson acknowledging changes were ‘well overdue’.

MP Jim McMahon said: ‘The 45p a mile rate, set 15 years ago, is nowhere near the true cost of running a vehicle today, which was recently assessed at 67p a mile, and that was before fuel costs rocketed in the last week’.

McMahon gave an example of the 15-year-old rate effecting his constituent, he said: ‘Gemma, a social worker for over two decades, travels around 400 miles a month for work, which means she is paying over £1,000 a year just to do her job and care for other people.’

In response the chancellor said: ‘I recognise that motoring costs have evolved significantly, and it is an important issue for many people who claim motoring expenses.

‘We are, therefore, looking at the issue and will consider the matter further in the usual way, as part of a future fiscal event.’ 

Keeping to her promise of ‘one fiscal event per year’, the chancellor said: ‘We have a standard Treasury policy of keeping all taxes under review… but as I say, this is one area that I will be keeping a very close interest in.’

Treasury minister Dan Tomlinson told MPs ‘a review is well overdue’, as ‘mileage rates have been unchanged since 2011 and that has increased the cost of working’.

Two days later, the Treasury has announced a workers-first review, which will ‘focus on people who rely on their car to do their job, ensuring they are not left out of pocket’.

This could help low earners using their cars for work, particularly care workers, which are paid the basic recommended approved mileage allowance payment.

A consultation has been planned ‘ahead of a future Budget’, with the Treasury stating ‘as part of this, the government will meet with people struggling with increased costs to inform this work as it develops’.

At the moment, approved mileage rates for cars and vans are set at 45p-per-mile tax-free for the first 10,000 miles, designed to cover the costs of running a vehicle, including insurance and servicing. But inflation means the rate is wildly low and does not cover the costs.

Before the Budget, the ATT called for an increase to the AMAP rates ‘to better reflect the current costs of running and maintaining a personal vehicle, in a similar way that HMRC regularly revises the advisory fuel rates for employees using a company car’.

Jon Stride, chair of the ATT’s technical steering group, said: ‘These rates are now so out of date that employees using their own vehicle for work are effectively out of pocket.

‘What’s more, if an employer chooses to pay higher mileage rates which better reflect the cost to their employee of running a vehicle, this creates tax and national insurance implications for both the employee and employer.’

Business & Accountancy Daily

See: HMRC Advisory fuel rates for company car users from 1 March 2026| Brearley & Co

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