Rajan Wilcox
Fuel duties are a significant source of revenue for the UK government, with fuel duty tax receipts totalling approximately £24.83 billion in 2023-24. This figure is expected to rise to £24.4 billion in 2025-26, equivalent to £850 per household and 0.8% of national income. The tax is levied on purchases of petrol, diesel, and other fuels, with the rate depending on the type of fuel. For instance, the headline 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. However, the rise of electric vehicles (EVs) is expected to impact the government's tax take from cars, as EVs are exempt from fuel duty and road tax.
| Characteristics | Values |
|---|---|
| Fuel duty tax receipts in the UK in 2023/24 | £24.83 billion |
| Fuel duty tax receipts in the UK in 2024/25 | £24.4 billion |
| Fuel duty tax receipts as a percentage of the UK's GDP | 1.5% |
| Fuel duty tax receipts as a percentage of all UK tax revenue | 4% |
| Fuel duty rate for petrol and diesel | 52.95 pence per litre |
| VAT rate on fuel | 20% |
| VAT on fuel duty | 10.59 pence |
| Fuel duty tax receipts in the UK in 2000/01 | N/A |
| Fuel duty tax receipts in the UK in 2022/23 | N/A |
| Fuel duty tax receipts in the UK in 2025/26 | N/A |
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What You'll Learn
Fuel duty tax receipts in the UK
Fuel duty is levied on purchases of petrol, diesel, and other fuels. It is included in the price paid for fuel and is a significant source of revenue for the UK government. The rate of fuel duty 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 marked gas oil is 10.18 pence per litre.
In 2022/23, fuel duties were estimated to raise £26.2 billion. In 2023/24, fuel duty tax receipts in the UK amounted to approximately £24.83 billion, compared to £25.1 billion in the previous financial year. Fuel duty tax receipts are expected to further decrease as the sale of new petrol and diesel cars will end between 2030 and 2035, replaced by electric vehicles which do not require fuel and are exempt from road tax.
The UK government has recognised the potential loss of tax revenue from the transition to electric vehicles. The Transport Select Committee (TSC) has advised that the Department for Transport and Treasury should collaborate to develop "preferred options" for replacing fuel duty and road tax. The TSC has suggested that a road charging system based on technology that measures road use may be necessary.
While the government has not disclosed specific details about its plans, potential solutions include telematics-based taxes, where electronics are wired into cars to track their usage and calculate the tax owed. However, this approach raises concerns about privacy, security, and potential higher charges for driving in urban areas or during peak times.
In the short term, the UK government has made policy assumptions for the uprating of fuel duty each year. Based on the announced policy, petrol and diesel duty rates are expected to rise by 5p in March 2026, followed by RPI inflation in April 2026 and subsequent years. These adjustments aim to maintain the real value of fuel duty rates by keeping them in line with inflation.
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VAT on fuel
In the UK, fuel duties are levied on purchases of petrol, diesel, and other fuels, providing a significant source of revenue for the government. While fuel duty is included in the price paid for fuel, VAT is applied on top of this pre-tax price. For example, the pump price of a litre of petrol includes the pre-tax price, fuel duty (52.95 pence per litre as of 2022-23), 20% VAT on the pre-tax price, and an additional 20% VAT on the fuel duty.
VAT is a tax applied to the supply of goods and services, with fuel and power subject to the standard rate unless specified otherwise. For instance, fuel supplied for foreign ships or aircraft is zero-rated, while a reduced rate of VAT applies to supplies of coal, coke, and other solid combustibles for qualifying use.
The UK government's tax revenue from fuel duties and road tax currently amounts to £35 billion annually, with fuel duty contributing £28 billion. However, the rise of electric vehicles (EVs) is expected to significantly impact this income stream. As the sale of new petrol and diesel vehicles ends between 2030 and 2035, the government will lose the associated tax revenue. This loss is estimated to be the "largest fiscal cost" of the UK's net-zero ambitions.
To address this challenge, the Transport Select Committee (TSC) has advised the Department for Transport and Treasury to collaborate on preferred options. The TSC and Climate Change Committee (CCC) have suggested the introduction of road pricing, where drivers are charged based on their vehicle usage. Telematic-based taxes, which track when and where a car is driven to calculate tax, have also been proposed.
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The impact of electric vehicles
Fuel duties are levied on purchases of petrol, diesel, and other fuels, and they represent a significant source of revenue for the UK government. In 2023/24, fuel duty tax receipts in the UK amounted to approximately £24.83 billion, with predictions for 2025/26 being £24.4 billion. The government collects this tax from drivers of petrol and diesel cars, and it accounts for about 4% of all tax revenue.
However, the rise in electric vehicles (EVs) is expected to impact this revenue stream significantly. As sales of new petrol and diesel cars are banned from 2030 to 2035, the UK government will lose the income generated from fuel duty and Vehicle Excise Duty (VED), also known as road tax. The transition to EVs is estimated to cost the government £13 billion a year in lost fuel duty by 2030. This issue is recognized as the "largest fiscal cost" of the UK's net-zero ambitions.
To address this loss in revenue, various solutions have been proposed. One suggestion is to introduce a 'road duty' for EVs, levied at around 6p per mile (plus VAT), to compensate for the decline in fuel duty. Another idea is to implement a road charging system based on technology that measures road usage. Telematic-based taxes, which involve wiring electronics into cars to track their movement and calculate tax owed, have also been considered. However, this approach raises concerns about privacy, security, and potential higher charges for driving in specific areas or during peak times.
While the UK government has acknowledged the need to address the fiscal impact of the EV transition, it has not yet indicated a preferred solution. The Department for Transport and Treasury, responsible for setting taxation policy, are urged to collaborate on this matter.
As the UK moves towards net-zero emissions and encourages the adoption of EVs, it is essential to develop sustainable solutions to offset the loss in fuel tax revenue. The impact of EVs on government finances underscores the complex interplay between environmental goals and economic considerations.
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Changes in fuel duty rates
Fuel duties are levied on purchases of petrol, diesel, and other types of fuel. They are a significant source of revenue for the UK government, expected to raise £24.4 billion in 2025-26. This figure represents 2.0% of all receipts, or £850 per household, and 0.8% of national income.
The rate of duty depends on the type of fuel. The standard rate for petrol and diesel is 52.95 pence per litre, although this has been frozen since 2011-12, with a temporary 5 pence cut introduced in 2022-23 and extended until 2025-26. This rate also applies to biodiesel and bioethanol. The rate for marked gas oil, which is mostly used for off-road diesel, is 10.18 pence per litre.
In 2022, the government announced a temporary 12-month reduction in fuel duty rates, including a 5 pence per litre cut for diesel, unleaded, and leaded petrol, with equivalent cuts to other rates where practical. This measure was taken in response to rising fuel prices, which threatened to reduce carbon emissions by increasing the cost of consuming fossil fuels. The change was expected to benefit individuals and businesses with high fuel consumption, including those with disabilities and those relying on private transport.
Looking ahead, the rise of electric vehicles (EVs) is expected to significantly impact government tax revenues from road tax and fuel duty, which currently amount to £35 billion per year. As the sale of new petrol and diesel cars is set to end between 2030 and 2035, the UK Treasury is facing the challenge of addressing this loss of income. While the government is working on a solution, the specifics remain unknown.
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Fuel duty as a percentage of GDP
Fuel duties are levied on purchases of petrol, diesel, and other fuels. They represent a significant source of revenue for the UK government. In 2023/24, fuel duty tax receipts in the UK amounted to approximately £24.83 billion, compared to £25.1 billion in the previous financial year. For every litre of petrol or diesel, the tax is 52.95 pence, plus a 20% slice of VAT. In 2025-26, fuel duties are expected to raise £24.4 billion, representing 2.0% of all receipts and 0.8% of national income.
While fuel duty receipts have remained relatively stable in cash terms in recent decades, they have declined as a share of GDP. This trend is largely due to the effective tax rate falling in real terms. The main rate of fuel duty was cut by one penny in the 2011 budget to 57.95 pence per litre and was temporarily reduced by 5 pence per litre from 2022-23. The decrease in receipts as a share of GDP and in cash terms in 2020-21 was exacerbated by reduced travel demand during the coronavirus pandemic.
The UK government's revenue from fuel duties and road taxes is expected to decrease significantly as the sale of new petrol and diesel cars ends between 2030 and 2035. Electric vehicles (EVs) are exempt from fuel duty and road tax, resulting in a projected loss of £35 billion in tax revenue annually. The transition to EVs presents a challenge for the government, which is actively working on solutions to address this fiscal issue.
To compensate for the loss in revenue, various alternatives have been proposed, such as taxing the electricity used to charge EVs or implementing a road pricing system. Telematic-based taxes, which involve tracking when and where a car is driven to calculate tax, have also been suggested. However, these proposals come with their own set of challenges, including privacy and security concerns.
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Frequently asked questions
The UK government gets billions from fuel tax. Fuel duty tax receipts in the United Kingdom from 2000/01 to 2023/24 have been in the range of £24-25 billion. In 2023/24, fuel duty tax receipts amounted to approximately £24.83 billion. In 2025-26, fuel duties are expected to raise £24.4 billion.
Fuel duty is levied per unit of fuel purchased and is included in the price paid for petrol, diesel, and other fuels used in vehicles or for heating. The rate depends on the type of fuel. The headline rate on standard petrol and diesel is 52.95 pence per litre, and VAT at 20% is charged on both the product price and the duty.
The rise of EVs is impacting the UK government's fuel tax revenue, as EVs generate no fuel duty and are exempt from road tax. As the sale of new petrol and diesel cars ends between 2030 and 2035, the UK government will lose out on the £35 billion in revenue that drivers of petrol and diesel cars contribute annually through fuel duty and Vehicle Excise Duty (road tax).
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