Diesel drivers will soon be paying 69p more per litre when filling up their cars. It comes as Chancellor Rachel Reeves announced the end to the fuel duty freeze. The tax, which is included in the price of petrol, diesel and other fuels, currently stands at 52.95p per litre, but will be 57.95p by March 2027.
The 5p freeze will be reverted in stages, starting with a 1p-per-litre increase, and followed by a 2p-per-litre increase on December 1, 2026 and March 1, 2027. However, in addition to the fuel duty, motorists are also set to pay a further 20% VAT on the fuel duty.
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The Office for Budget Responsibility (OBR) explained: "VAT is applied after fuel duty, so, for example, the pump price of a litre of petrol currently reflects the pre-tax price plus 52.95p for fuel duty plus 20% VAT on the pre-tax price and a further 10.59p for VAT at 20% on fuel duty."
VAT is applied after Fuel Duty at a rate of 20%, meaning that when Fuel Duty rises to 57.95p, it will have a VAT of 11.59p, giving a total of 69.54p per litre.
The OBR also notes that fuel duties "represent a significant source of revenue for the Government".
It added: "In 2025-26, we expect fuel duties to raise £24.4 billion. That would represent 2.0% of all receipts and is equivalent to £850 per household and 0.8% of national income."
Rachel Reeves recieved critism lifting the fuel duty freeze.
Shadow Chancellor Sir Mel Stride said: "Now after just one year Labour are putting up the duty and reaching into the pockets of commuters and hardworking families — all because they are too weak to control spending."
The Chancellor also announced a new pay-per-mile charge for electric cars and plug-in hybrids. Electric vehicles will be charged 3p per mile, while the charge for plug-in hybrids is half of what it is for EVs, at 1.5p.
The charge will be rolled out from 2028.