A reversal of the 5p fuel duty cut and the introduction of a pay-per-mile scheme could be on the cards for drivers in the Autumn Budget, to make up the revenue shortfall created by the increasing shift from diesel to electric and hybrid vehicles, RSM UK is warning.
The audit, tax and consulting firm points to HMRC’s latest monthly tax receipts which show fuel duty receipts for April 2025 to September 2025 standing at £12.2bn, which is £26m lower than the same period last year.
Sheena McGuinness, RSM UK co-head of energy and natural resources, said: “Fuel duty receipts continued their downward trajectory in September, reflecting the ongoing transition from petrol and diesel vehicles to electric vehicles (EVs).
“While this shows progress towards realising the UK’s net zero ambitions, reduced fuel duty is creating a widening gap in public finances which the government needs to tackle.
“Historically, fuel duty revenues have provided a significant proportion of the UK’s tax take, making up almost 7% in 2019/20. In contrast, the Office for Budget Responsibility (OBR) forecasts that fuel duty revenues will represent 2% of total tax revenues in 2025/26.
Fuel duty has been frozen since 2011, and the 5p-per-litre cut from 2022 is still in place until March 2026. McGuiness said one option open to the Chancellor would be to reverse the long-running 5p cut to fuel duty.
She said: “With oil prices at their lowest level since early 2021, the Chancellor has a timely opportunity to reverse the 5p fuel duty cut and align rates with the Retail Price Index, leveraging favourable market conditions to strengthen public finances.
“The OBR has already factored both these aspects into its forecasts, meaning that without implementation, the Chancellor will need to find an additional £2.7bn from alternative sources. As such, it seems highly likely we will see a change to fuel duties in the forthcoming Autumn Budget.”
However, McGuiness argues that reversing the 5p cut in fuel duty would not be enough to offset the growing deficit caused by declining fuel duty revenues.
She said: “The only sustainable solution is to develop an alternative fuel duty for the increasing number of EVs in the UK. We could therefore see the introduction of a price-per-mile scheme in the budget, which would represent a significant policy shift from the government’s previous stance ruling out such measures.”
A price-per-mile model could simplify the current system, by merging vehicle excise duty, fuel duty, toll road fees, congestion charges, and low-emission zones into one payment.
In its recent report Call of Duties, think tank Resolution Foundation suggests a mileage-based fee that depends on how heavy a vehicle is, to help cover the wear and tear on the UK’s roads.
It states: “Weight is a good basis for a tax because it correlates with a range of other things appropriate to public policy, including road damage, noise, pollution from tyres and brakes, danger to others, road footprint, and car value.”
