Katerina Swanson
Fuel duties are levied on purchases of petrol, diesel, and other fuels. They are a significant source of revenue for the government. In 2022, the UK government collected £25.9 billion (1.1% of GDP) from fuel duty. This was a 24% increase from the previous year, but still £1.7 billion less than the £27.6 billion collected in 2019/2020 before the pandemic. The rate of duty on fuel is currently 52.95 pence per litre for petrol and diesel, and it has been frozen since 2011. In March 2022, the government announced a temporary 5 pence cut in the rate of duty, which is expected to cost £2.4 billion in 2022/23. As more people switch to electric vehicles, the government will need to find new sources of revenue to replace the £35 billion a year that is currently generated from fuel duty and road tax.
| Characteristics | Values |
|---|---|
| Amount made from fuel duty in the UK in 2023/24 | £24.83 billion |
| Amount made from fuel duty in the UK in 2022/23 | £26.2 billion |
| Amount expected to be made from fuel duty in the UK in 2025/26 | £24.4 billion |
| Amount expected to be lost from fuel duty each year as electric cars replace petrol and diesel cars | £35 billion |
| Rate of duty on petrol and diesel as of March 2022 | 52.95p per litre |
| Rate of duty on petrol and diesel as of March 2022 including VAT | 49% of the final pump price for petrol, 46% for diesel |
| Rate of duty on petrol and diesel as of March 2023 | 57.95p per litre |
| Rate of duty on petrol and diesel as of March 2023 after a temporary 12-month reduction | 52.95p per litre |
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What You'll Learn
The UK government collects £28 billion a year from fuel duty
Fuel duties are levied on purchases of petrol, diesel, and other fuels. They are a significant source of revenue for the UK government. The two main categories of road fuel—unleaded petrol and diesel—are charged a duty of 52.95 pence per litre. The duty has been frozen since 2011-12 and includes a temporary 5 pence cut introduced in 2022-23 and extended until 2025-26.
In 2023-24, fuel duty tax receipts in the UK amounted to approximately £24.83 billion, down from £25.1 billion in the previous financial year. In 2022-23, the Office for Budget Responsibility estimated that fuel duties would raise £26.2 billion. The UK government collects £28 billion a year from fuel duty, and this amount is expected to increase to £28.4 billion in 2024-25 and £30.8 billion in 2025-26.
The UK government's income from fuel duty is expected to decrease in the coming years due to the increasing popularity of electric vehicles, which are exempt from fuel duty and Vehicle Excise Duty (road tax). The government is working on addressing this issue, but it has not disclosed any specific plans.
The fuel duty rate has been a topic of discussion for successive UK governments. In 2011, the Coalition Government cut duty rates by 1 pence per litre, followed by a four-year freeze. The Conservative Government continued the freeze from 2015 to 2021. In March 2022, Chancellor Rishi Sunak announced a temporary 5 pence per litre reduction in fuel duty for 12 months, which cost the government £2.4 billion in 2022-23.
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Fuel duty is levied per unit of fuel purchased
Fuel duty is a tax levied on purchases of petrol, diesel, and other fuels. It is charged per unit of fuel purchased and is included in the price paid for fuel used in vehicles or for heating. The rate depends on the type of fuel. For instance, the standard rate for petrol and diesel is 52.95 pence per litre, while the rate for liquefied petroleum gas is 28.88 pence per kilogram. Fuel duty is a significant source of revenue for the government, contributing billions of pounds to the economy each year. For example, in 2023-24, fuel duties were expected to raise £24.7 billion, representing 2.2% of all receipts and resulting in an estimated contribution of £850 per household.
The government's income from fuel duty is influenced by various factors, including economic growth, inflation, and changes in fuel consumption. For instance, during the coronavirus pandemic, a decline in economic activity and travel led to weaker fuel duty receipts in 2020-21. Additionally, the shift towards electric vehicles is expected to impact fuel duty revenue in the long term. As a result, the government is exploring alternatives to maintain tax revenues while supporting the transition to electric vehicles.
The calculation of fuel duty receipts involves forecasting total distances travelled, considering domestic consumption, real GDP, and pump prices. Assumptions about the proportion of travel by electric vehicles and trends in fuel efficiency are also factored in. The fuel duty forecast plays a crucial role in the government's budget planning and policy-making process.
While fuel duty rates have remained relatively stable, there have been temporary adjustments. For instance, a 5 pence cut in the duty rate per litre was introduced in 2022-23 and extended to subsequent years. This reduction aimed to offset the impact of rising crude oil prices on pump prices. However, such cuts can also lead to a decline in revenue for the government.
The UK government collects tax revenue from drivers of petrol and diesel vehicles through fuel duty and Vehicle Excise Duty (road tax). Combined, these sources contribute a significant portion to the country's GDP and overall tax revenue. As the country transitions to electric vehicles, the government faces the challenge of addressing the potential loss of revenue from fuel duty and road tax, which currently amounts to £35 billion annually.
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The main rate of fuel duty has been frozen since 2011
The UK government has been collecting fuel duties, a tax levied on purchases of petrol, diesel, and other fuels, to the tune of £35 billion a year. In 2023/24, fuel duty tax receipts in the UK amounted to approximately £24.83 billion. This revenue stream is, however, under threat as the country transitions to electric vehicles (EVs). Electric cars are exempt from both road tax and fuel duty, and with new petrol and diesel car sales banned from 2030 to 2035, the government stands to lose £35 billion in annual revenue.
To address this fiscal challenge, the Transport Select Committee (TSC) has advised the Department for Transport and the Treasury to collaborate on "preferred options" for replacing fuel duty and road tax. The TSC has emphasised the urgency of the situation, and the Climate Change Committee (CCC) has recommended introducing some form of road pricing to charge drivers based on their usage.
While the government works on a solution, it has continued to freeze the main rate of fuel duty, which has been in place since 2011. This freeze has been welcomed by motorists and the logistics industry, especially amid high pump prices following the Covid-19 pandemic and the Ukraine war. However, critics argue that the freeze is environmentally damaging as it encourages higher fuel consumption and carbon emissions.
The freeze has also been estimated to cost the treasury around £100 billion, which could have been invested in other areas such as the NHS, infrastructure, or reducing the national debt. Some have suggested that this money could have been better spent on incentivising the use of sustainable fuels or making electric vehicle charging more affordable.
The government's decision to extend the fuel duty freeze for another year in the Autumn Budget 2024 has sparked mixed reactions. While motorists and some industries express relief, others argue that the money could have been better spent on more progressive initiatives, such as investing in public transport or supporting the transition to electric vehicles.
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Fuel duty tax receipts in the UK were £25.9 billion in 2021/22
In recent years, there have been concerns about the decline in fuel duty tax receipts due to various factors, such as the switch to electric vehicles (EVs) and policy measures affecting fuel duty rates. The rise in EVs is expected to significantly impact the government's tax revenue from fuel duties, as electric cars do not pay fuel duty or road tax. As the sale of new petrol and diesel cars is banned between 2030 and 2035, the government faces the challenge of finding alternative sources of revenue to compensate for the loss of fuel duty tax receipts.
To address this issue, the Transport Select Committee (TSC) has recommended the introduction of road charging systems based on technology that measures road use. The TSC has urged the Department for Transport and Treasury to collaborate on preferred options for replacing fuel duty and road tax. The Climate Change Committee (CCC) has also emphasized the necessity of implementing some form of road pricing to charge drivers based on their usage.
In the short term, the government has taken measures to reduce fuel duty rates temporarily. In the 2022 Spring Statement, the government announced a 5 pence per litre reduction in fuel duty rates for 12 months, which was expected to cost £2.4 billion in 2022/23. This decision was made to support households and businesses during a period of high oil prices and reduce transport costs. However, there are concerns that maintaining the fuel duty cut could cost the government over £20 billion and hinder the Prime Minister's goal of reducing debt as a proportion of GDP.
Overall, fuel duty tax receipts play a crucial role in the UK's economy, and the government faces the challenge of adapting to the changing landscape of transportation, including the increasing adoption of electric vehicles.
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The government reduced fuel duty by 5 pence per litre in 2022/23
Fuel duties are a significant source of revenue for the UK government, with fuel duty and Vehicle Excise Duty (road tax) bringing in a combined £35 billion a year. Fuel duty alone generates £28 billion annually. The rate of fuel duty depends on the type of fuel and how it is used. The standard rate for petrol and diesel is 52.95 pence per litre and has been frozen since 2011-12.
In 2022/23, the government reduced fuel duty by 5 pence per litre. This reduction was first announced in the Spring Statement of 2022 and was in place for 12 months from 6 pm on 23 March 2022. The rate for Avgas was reduced by 5%, and there was a proportionate percentage cut for other lower rates and rebated fuels. This measure was implemented to reduce the cost of fuel for households and businesses, as oil prices were at unprecedented levels. It was expected to impact up to 36 million individuals by reducing motoring costs.
The government extended the temporary 5 pence reduction several times. In the Spring Budget of 2023, the planned April 2023 RPI rise was cancelled, and the 5 pence reduction was extended for another 12 months. This was repeated in the Spring Budget of 2024, with the planned April 2024 RPI rise cancelled, and the reduction extended for a further 12 months. In the Autumn Budget of 2024, the planned April 2025 RPI rise was cancelled, and the 5 pence reduction was extended once more. These changes have been made to address the unique circumstances of high fuel prices and are expected to reduce transport costs for those who rely on private transport, including individuals with disabilities.
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Frequently asked questions
The UK government makes billions from fuel duty. In the 2022/23 tax year, the government collected £25.9 billion (1.1% of GDP) from fuel duty. In 2023/24, this figure is estimated to be around £24.83 billion.
Fuel duties are levied on purchases of petrol, diesel, and other fuels. The rate depends on the type of fuel. For example, the rate for standard petrol and diesel is 52.95 pence per litre, while the rate for marked gas oil is 10.18 pence per litre.
In 2022, the government announced a 12-month reduction in fuel duty rates of 5 pence per litre, which was estimated to cost the government £2.4 billion in 2022/23.
