Rajan Wilcox
Fuel duty is a tax levied on purchases of petrol, diesel, and other fuels in the UK. It is included in the price paid for fuel and is typically charged at a flat rate per unit of fuel purchased. The rate depends on the type of fuel, with the standard rate for petrol and diesel being 52.95 pence per litre as of 2025. Fuel duty has been a contentious issue in the UK, with protests and demands for both increases and decreases in the duty. It is a significant source of revenue for the government, expected to raise £24.4 billion in 2025-26, but it is also cited as a burden on households, businesses, and certain industries. With the shift towards electric vehicles and the government's encouragement of their use, the sustainability of fuel duty revenues is coming into question.
| Characteristics | Values |
|---|---|
| What is Fuel Duty levied on? | Purchases of petrol, diesel, and other fuels. |
| How is Fuel Duty calculated? | Per unit of fuel purchased. |
| What is the current rate of Fuel Duty? | 52.95 pence per litre for standard petrol and diesel. |
| Has the rate changed over time? | Yes, it was 57.95 pence per litre in 2021-22, and has been frozen since 2011-12 with a temporary 5 pence cut introduced in 2022-23 and extended until 2025-26. |
| What other factors impact the rate? | VAT is applied at 20% on the pre-tax price and the fuel duty amount. |
| How much revenue does Fuel Duty generate? | Expected to generate £24.4 billion in 2025-26, and £27 billion in 2026-27. |
| What is the impact of Fuel Duty? | It represents a significant source of government revenue, but high rates adversely impact small businesses and are a divisive political issue. |
| Are there any exemptions or reductions? | Yes, a 5 pence reduction was introduced temporarily for 12 months in 2022, and there are different rates for other types of fuel, e.g. marked gas oil has a lower rate. |
| What is the outlook for Fuel Duty? | With the shift to electric vehicles, a decline in fuel consumption is expected, which will impact Fuel Duty receipts. |
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What You'll Learn
Fuel duty rates in the UK
Fuel duty is levied on purchases of petrol, diesel, and other fuels. It 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. As of 2025, the headline rate on standard petrol and diesel is 52.95 pence per litre, including a temporary 5 pence cut introduced in 2022-23 and extended until 2025-26. This rate also applies to biodiesel and bioethanol. The rate on marked gas oil, mainly representing off-road diesel used for agriculture, rail, non-commercial heating, electricity, and other qualifying purposes, is 10.18 pence per litre.
In March 2022, UK Chancellor Rishi Sunak cut fuel duty by 5 pence per litre in response to the sharp rise in petrol prices following the Russian invasion of Ukraine. This reduction was maintained in the 2023 and 2024 budgets. Prior to this, the fuel duty had been frozen for a decade at 57.95 pence per litre on ultra-low-sulphur petrol and diesel.
VAT is applied after fuel duty. For example, the pump price of a litre of petrol includes the pre-tax price, 52.95 pence for fuel duty, 20% VAT on the pre-tax price, and an additional 10.59 pence for VAT on fuel duty. On average, about 83 pence of the price of a litre of petrol, which currently costs around £1.53, goes towards fuel duty and VAT. When VAT is included, tax typically represents just over 60% of the final pump price for petrol and diesel.
Fuel duties are a significant source of revenue for the government. In 2025-26, fuel duties are expected to raise £24.4 billion, equivalent to 2.0% of all receipts, or £850 per household. However, with the shift to electric vehicles, fuel duty receipts are expected to fall in the long term.
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VAT and other taxes
Value-added tax (VAT) and other taxes are significant components of fuel prices in the UK. As of March 2022, the fuel duty was 57.95 pence per litre for petrol and diesel. This was reduced by 5 pence per litre to 52.95 pence in the 2023 and 2024 budgets, and this rate has been frozen until 2026. This duty is included in the price paid for petrol, diesel, and other fuels used in vehicles or for heating.
VAT is applied on top of the fuel duty. At the average UK pump price of around £1.53 for petrol, about 83 pence of that is fuel duty and VAT. At higher prices, such as the average of £1.90 per litre, the total duty and VAT amount to about 90 pence. This means that, including VAT, tax typically represents just over 60% of the final pump price for petrol and diesel.
The standard rate of VAT on most fuel is 20%, although there is a reduced rate of 5% for domestic heating fuel. The VAT is calculated based on both the product price and the duty. For example, for a litre of petrol, the pre-tax price plus 52.95 pence for fuel duty is multiplied by 1.2 to include the 20% VAT. This brings the total price to around 1.54, of which 10.59 pence is VAT at 20% on the fuel duty.
The UK government's policies and international events can significantly impact fuel duty and VAT rates. For instance, the government announced a temporary 12-month reduction in fuel duty rates in March 2022 due to rising oil prices. Additionally, the Russian invasion of Ukraine contributed to a sharp rise in petrol prices, leading to a further 5 pence reduction in fuel duty. These changes can have a substantial impact on households and businesses, affecting transport costs and disposable incomes.
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How fuel duty impacts industries
Fuel duty is a UK policy that imposes a tax on fuels such as petrol, diesel, and biofuels. The tax is included in the price per litre of fuel and is automatically added to the price consumers pay for fuel used in vehicles and other operations. The rate depends on the type of fuel and its usage, with commercial operations impacting the cost. As of 2025, the fuel duty in the UK is 52.95 pence per litre for standard petrol and diesel, including biodiesel and bioethanol. This rate has been frozen since 2011-12, with a temporary 5 pence cut introduced in 2022-23 and extended until 2025-26.
Fuel duty has a significant impact on transport costs for both businesses and individuals. Changes in fuel duty rates can affect inflation, consumer spending, and business costs. For example, an increase in fuel duty leads to higher transportation costs, which can subsequently impact the price of goods and services. This is particularly relevant for industries that rely heavily on transportation, such as logistics and delivery services.
Additionally, high fuel duties can adversely affect certain industries. For instance, the taxi industry and small businesses often bear the brunt of elevated fuel duties as their operations are heavily dependent on fuel consumption. Similarly, industries that utilise fuel for non-vehicle purposes, such as heating or running machinery, may also be impacted by changes in fuel duty rates.
In recent years, the UK government has made temporary adjustments to fuel duty rates to alleviate the financial burden on households and businesses during periods of high oil prices or other exceptional circumstances. For instance, in 2022, the government announced a temporary 12-month reduction in fuel duty rates to counter the surge in fuel prices caused by the Russian invasion of Ukraine.
Looking ahead, the UK government's fuel duty policy faces scrutiny due to the increasing adoption of electric vehicles, which do not incur fuel duty. This shift is expected to create a significant "black hole" in public finances, as fuel duty currently generates a substantial portion of government revenue.
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Electric cars and the future of fuel duty
The UK's fuel duty is currently set at 52.95 pence per litre for standard petrol and diesel, including biodiesel and bioethanol. This rate has been frozen since 2011-12, with a temporary 5 pence cut introduced in 2022-23 and extended until 2025-26. Fuel duties are levied on purchases of petrol, diesel, and other fuels, generating significant revenue for the government.
However, with the shift towards electric vehicles (EVs), the government faces a significant challenge. Electric cars are exempt from fuel duty and will result in a substantial shortfall in tax receipts, estimated at £35 billion annually. This revenue loss has prompted discussions about implementing a new tax system that is equitable and aligns with the transition to EVs.
One suggestion is to tax the electricity used to charge EVs, as electricity is already taxed at 5% VAT for home usage and 20% VAT for public EV charge points. However, differentiating between electricity used for charging EVs and other purposes at home could be challenging.
Another option is road pricing, where drivers are charged based on how much, when, and where they drive. This could be facilitated through telematics-based taxes, with electronics wired into cars to track usage and calculate tax owed. However, privacy concerns arise with the government collecting detailed data on citizens' movements.
The UK government has also introduced measures to incentivize the transition to EVs, such as favourable first-year Vehicle Excise Duty (VED) rates for low-emission cars and company car tax benefits. From April 2025, electric vehicles will be liable to pay the same rates of VED as petrol and diesel vehicles, removing the previous exemption.
As the UK moves towards a future with more electric cars, the government must carefully design a sustainable tax system that encourages the adoption of EVs while ensuring stable tax revenues to fund public services and social priorities.
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Fuel duty evasion
One common type of fuel duty evasion is the misuse of rebated fuels, which are intended for non-road use or specific industries. Criminal organisations have been known to launder these rebated fuels, mixing them with other substances to create illegal road fuels that are then sold to unsuspecting hauliers. This practice enables them to evade excise duty and VAT, with the fraudulent suppliers often disappearing without paying the applicable taxes.
Red diesel, a type of gas oil used in industrial heaters, generators, and agricultural vehicles, is subject to a lower duty rate than regular diesel and unleaded petrol. However, it has become a target for fuel fraud, with an estimated 2% market share in the UK and a dominant 6% market share in Northern Ireland. Criminals remove the red dye from red diesel or smuggle it from the Republic of Ireland, where duty rates are lower, to evade detection and use it illegally in road-going vehicles.
To combat fuel duty evasion, the UK and Irish governments have introduced new markers for rebated fuels, making it harder for criminals to remove the dyes and evade detection. The government has also invested nearly £1 billion in HMRC to tackle avoidance, evasion, and fraud, recognising the significant impact of these crimes on the economy and public services.
While these measures aim to deter and prevent fuel duty evasion, it remains a challenging issue. With the potential for large savings by using rebated fuels illegally and the profitability of the trade, criminals continue to develop methods to avoid detection, endangering both the environment and consumers in the process.
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Frequently asked questions
As of 2025, fuel duty in the UK is levied at a flat rate of 52.95 pence per litre for petrol and diesel. This includes a temporary 5 pence cut introduced in 2022-23 and extended until 2025-26.
Fuel duty is a tax levied on the purchase of fuels such as petrol, diesel, and other vehicle fuels. It is included in the price paid for the fuel.
Fuel duties are expected to raise £24.4 billion in 2025-26, which is around £850 per household. In 2026-27, receipts are expected to increase to £27 billion due to the reversal of the 5 pence cut.
VAT refers to Value-Added Tax, which is charged on top of the fuel duty rate. VAT is applied at a rate of 20% on the pre-tax price of the fuel and an additional 10.59 pence on the fuel duty.
Fuel duty is a significant source of revenue for the UK government, and it is used to fund various public services. Additionally, the UK has committed to encouraging the use of electric vehicles, which do not pay fuel duty, creating a need to increase duties on fossil fuels.
