Written statement: Transport taxation update - May 20

Exchequer Secretary (Dan Tomlinson): The government is confirming action to support households and businesses with their fuel costs, in response to the conflict in the Middle East.

Middle East context and existing government action

A rapid de-escalation in the Middle East remains the best way to bring down fuel prices, where the most impactful step is to reopen the Strait of Hormuz. The UK government is playing a leading role in the international effort to get shipping flowing freely.

Alongside this key step, the government's priorities will continue to be helping families with the cost of living, including through protecting the public finances to support the Bank of England with its role in keeping inflation as low as possible.

The government has already taken action to bear down on prices at the pump. In November, the government extended the 5p per litre cut in fuel duty for a further five months and ensured that fuel duty will not increase in line with inflation this year. The government's Fuel Finder scheme is delivering real benefits at the pump, with a growing number of apps and websites making near-live fuel prices available to drivers right across the UK. The CMA has stepped up its monitoring of petrol and diesel prices, recently publishing its first enhanced monitoring report on the impact of the conflict, with plans to report further in the coming week.

Petrol and diesel are currently 11p per litre cheaper than under plans inherited from the previous government, and fuel duty has not been lower than it is now at any point in over 16 years. However, some fuels have been more impacted than others by this conflict, with jet fuel, diesel and heating oil prices increasing more than petrol. The government also recognises the pressures being faced by drivers and other fuel users.

Going further to support motorists and other fuel users

Today, the government is announcing a package worth over £400m, which combines broad support for motorists with targeted support for sectors most exposed to and affected by higher fuel prices.

Fuel duty: 5p cut extension until end of 2026 to support motorists

The government will not add to the cost of fuel while this war goes on, so there will be no rise this year. The temporary 5p per litre cut, which was introduced in 2022 and remains in place now, will be extended until the end of the year, providing certainty to motorists. This will save the average motorist over £120 compared to plans inherited from the previous government, with hauliers and van drivers seeing greater savings. The proportionate percentage cut for rebated fuels, which includes red diesel, will also be extended.

This support for motorists builds on help for more families to get off the fossil fuel rollercoaster for good, through the over 110,000 electric car grants the government has made in the last year to help people to switch to EVs. The government has also worked to bring the cost down and convenience up to make electric driving work for more people, enabling motorists to save with every mile they drive, irrespective of the Iran conflict's uncertain path. This change to fuel duty will ease the pressure on those not yet ready or able to make the switch.

Fuel duty: additional support for red diesel users

To support farmers, who face substantially increased costs on fertiliser and fuel, the government will cut the duty rate on red diesel by over a third per litre from 10.18p to 6.48p, the lowest rate in over 20 years.

This lower rate will take effect from 15 June and remain in place until the end of the year, supporting the agricultural sector in the fuel intensive harvest period through the end of the year, and will also help other users of red diesel too, such as maritime, commercial fishing and rail freight.

HGV VED holiday: support for haulage

Recognising the key role the road haulage sector plays in transporting goods across the UK and their disproportionate exposure to fuel costs, the government is introducing a 12-month holiday from Vehicle Excise Duty for the majority of heavy goods vehicles (HGVs), which will save a typical HGV £600 on top of savings from fuel duty. Fuel costs make up a substantial proportion of HGV operating costs, and this action will help prevent cost pressures from the Iran conflict spreading across the economy.

The government will bring forward legislation to enact these changes.

Today's announcement is one part of support for households and businesses. The government will consider further action if price levels increase significantly. More broadly, the government will continue to monitor the situation and make the necessary decisions to help protect consumers from price increases from the Iran war.