Chancellor Rachel Reeves has confirmed a new £1 tax charge for thousands of drivers, as part of a broader package of measures to support the haulage industry and address cost-of-living pressures. The announcement, made by Sir Keir Starmer in the Commons, includes an extension of the temporary 5p cut in fuel duty and a vehicle tax holiday for hauliers.
Key Announcements
Starmer told MPs that the government is extending the freeze in fuel duty for the rest of the year, alongside a 12-month vehicle tax holiday for hauliers. The Chancellor will set out further action tomorrow. The vehicle tax holiday means hauliers will pay just £1 at renewal, saving £600 for a typical heavy lorry and £912 for the largest vehicles on the road.
Responding to a question from Labour MP Kirsteen Sullivan about cost-of-living pressures, Starmer said: "There is more that we can do, and I can announce today that we are giving our hauliers a 12-month vehicle tax holiday, helping to keep prices down, and we are backing drivers by extending the freeze in fuel duty for the rest of the year. This is possible because of the decisions taken by the chancellor, making us the fastest-growing economy in the G7."
Context and Impact
The measures are designed to help keep costs down in the haulage industry, which has been affected by increased fuel prices caused by the US-Israeli attack on Iran. Starmer emphasized: "This is not our war, but while the parties opposite wanted to jump into it, Labour will always protect working people." The tax holiday will help with getting raw materials onto farms and produce into supply chains, particularly benefiting the poultry sector, which has been hit by increased costs associated with specialist bird movements.
Drivers of Heavy Goods Vehicles will see tax renewals reduced to just £1 for a year, easing pressure on businesses hit by soaring fuel prices. The temporary measure will save operators of standard HGVs around £600, while the largest lorries on UK roads could save as much as £912.
Expert Analysis
Isaac Delestre, Senior Research Economist at the IFS, commented: "A 5p cut to fuel duties was first implemented as a one-year measure in March 2022, but has been repeatedly extended ever since. The autumn 2025 Budget announced that it would be phased out gradually, with the duty rate rising by 1p on 1 September of this year before rising by a further 2p on 1 December and finally by 2p more on 1 March 2027. Today's announcement delays the first two of these increases until 1 January 2027, implying a 3p rise in fuel duties then and a further 2p rise on 1 March 2027. That delay will have a one-off cost to the exchequer of about £200 million."
Delestre added: "If the Chancellor were to keep the full 5p cut permanently, it would cost about £2.3 billion a year by 2029-30, relative to current forecasts. Government also announced a 12-month suspension of vehicle excise duty for hauliers and a one third cut in the rate of fuel duty for users of red diesel. The latter will cost around £60m. Two good principles for emergency support are that it should be temporary and targeted. As announced, these measures are temporary, but the government is likely to face pressure to extend them. The fuel duty cuts are targeted towards those households and firms most exposed to fuel price increases, though they will of course also weaken incentives to reduce fuel use."
