Fuel Duty Crisis Deepens as Electric Vehicle Adoption Surges
Chancellor Rachel Reeves is facing mounting pressure to end the fuel duty freeze at the upcoming Autumn Budget due to a significant revenue shortfall caused by the rapid adoption of electric vehicles (EVs). The UK’s push towards EVs has led to a £200million drop in fuel duty receipts, bringing the total to £24.6billion, with experts warning that this figure will continue to decline.
The decline in fuel duty revenue comes at a critical time for Reeves, with experts urging her to address the shortfall urgently to prevent further investment uncertainty. The current fuel duty freeze is set to expire in March 2026, and industry analysts suggest that increasing fuel duty after this period could help bridge the revenue gap while supporting the government’s Zero Emission Vehicle mandate, which requires all new car sales to be electric by 2030.
Sheena McGuinness, Co-Head of Energy and Natural Resources at RSM UK, noted, “While the tax take for the majority of other taxes has increased, fuel duty receipts continue to fall.” McGuinness emphasized that this trend is concerning, especially given the importance of increasing renewable electricity generation to achieve net zero goals and enhance energy security.
The temporary 5p per litre fuel duty cut, introduced in 2022, has contributed to the declining revenues. A Treasury spokesperson stated, “The 5p cut is set to expire in March 2026. The Chancellor makes decisions on tax policy at fiscal events in the context of public finances.”
Experts warn that the current low fuel duty rate, which is the lowest in cash terms since March 2009, may slow the transition to greener transport options. As electric vehicle adoption continues to rise, the government faces a significant funding challenge in maintaining revenues from driving.
With the Industrial Strategy expected in June, the government is under increasing pressure to address the fuel duty revenue decline as part of a comprehensive approach to energy policy. McGuinness stressed that “industry and consumers alike need a long-term strategy and some certainty on the future cost of motoring to support the transition to electric vehicles.”
The Autumn Budget, expected later this year, is anticipated to provide clarity on the government’s current car tax position. As the UK continues its transition towards electric vehicles, the government must balance the need to maintain revenue with the goal of promoting greener transportation options.
