The Chancellor handed motorists a major win during the Spring Statement with a fuel duty announcement – but her move may end up costing the UK more than it benefits motorists
Motorists have been offered a “glimmer of hope” after Rachel Reeves reconfirmed her pledge to extend a freeze of fuel duty made during her Autumn Budget last year. The Chancellor previously said in October 2024 that increasing the fuel levy – which applies to petrol, diesel and any other fuel and is applied at the pump – from the 52.95 pence per litre rate would “be the wrong choice for working people”.
She added at the time that the freeze, which has applied since the 2011/2012 tax year, would stick throughout 2025 and save motorists up to £60. Today, the Chancellor confirmed she remained committed to extending the frozen fees, meaning drivers will save the sum for another year running until March 2026.
The news has gone down well with drivers, who have praised the move as a positive one that will help drivers during an especially difficult moment. Follow our Spring Statement 2025 live blog for the latest updates and to see how all the changes affect your money. What do you think of the Spring Statement? Email [email protected]
John Cassidy, the Director of Sales at Close Brothers Motor Finance, said the news comes as a “glimmer of relief”, as the economic environment looks increasingly bleak for motorists. He said: “ The Chancellor reconfirming her pledge to extend the freeze of fuel duty, as well as the temporary five pence cut, until March 2026, will offer a glimmer of relief to motorists concerned about the soaring cost of driving from A to B.
“Whilst only likely to have a small positive impact, it’s a step in the right direction, particularly for the 35% of drivers who cite fuel prices as the biggest challenge in the next 12 months. And well over half (57%) of drivers say cars are becoming unaffordable.”
“Although we’ve seen a dip in fuel prices in recent weeks, fuelled by the supermarket price wars, the Government needs to ensure these cuts continue to reach drivers, fuel tanks and wallets.”
While good news for drivers hoping to save money in 2025, maintaining the fuel duty freeze could prove damaging for the Government, especially when it comes to fiscal headroom. Ms Reeves boasted that officials have headroom of £9.9 billion, meaning it has more leeway within its self-imposed financial rules to increase spending if necessary.
But the Office for Budget Responsibility (OBR) the organisation responsible for analysing the Government’s proposed financial policies, predicted available headroom drops by £3.8 billion down to £6.1 billion. Critics have suggested that, given the pledge to continue freezing the levy, the lower amount should be considered the true headroom.
The OBR has previously revealed that freezing fuel duty for the last more than a decade has massively cost the government, estimating the costs at roughly £100 billion – approximately 2.5% of the UK’s GDP.
Fuel duty freezes can also have a widely beneficial impact on the economy, however, with the OBR’s Economic and Fiscal Outlook (EFO) of 2024 finding it would help marginally reduce Consumer Price Index (CPI) inflation in 2025 to 2026. Unwinding the freeze between 2026 and 2027 will increase inflation, the OBR estimates.
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