The fuel duty cut extension in the Autumn Budget 2026

In the Autumn Budget on 28 October 2026, the Chancellor extended the temporary 5p-per-litre cut in fuel duty to 1 July 2027 and deferred the planned Retail Prices Index (RPI) increase to the same date. This post explains how the change moves the duty on each litre of petrol and diesel, and what it means for example households, using PolicyEngine UK household calculations.

Key figures:

• The main rate of fuel duty stays at 52.95p a litre to 30 June 2027. Before the Budget, the rate was due to rise to 55.95p on 1 January 2027 and 57.95p on 1 March 2027, with an RPI increase planned for April 2027.
• On 1 July 2027, the rate rises to 60.59p. From that date, on our assumption for April 2027, it follows the same path as before the Budget.
• With the VAT on the duty, a litre costs 3.6p less in January and February 2027, 6.0p less in March 2027 and 9.2p less from April to June 2027.
• A household that uses 1,000 litres of fuel a year, about 19 litres a week, pays £34 less in total: £12 in 2026-27 and £22 in 2027-28.
• PolicyEngine estimates that the measure costs £301 million in 2026-27 and £521 million in 2027-28 on fuel that households buy, and nothing in later years. For context, HM Treasury estimates that it reduces fuel duty receipts by £575 million and £780 million (Budget 2026, Table 6.1, row 3).
• In 2027-28, household net income rises by £18 a year on average, from £12 in the lowest income decile to £24 in the ninth.

Fuel duty on petrol and diesel has been 52.95p a litre since the 5p cut of March 2022. Before the Budget, the cut was due to end in two steps: the rate was to rise to 55.95p on 1 January 2027 (SI 2026/164, as amended by SI 2026/555), and to return to 57.95p on 1 March 2027, the rate in section 6 of the Hydrocarbon Oil Duties Act 1979 (HMRC, Amended Fuel Duty rates: 2026 to 2027). Government policy since Budget 2025 was to uprate the rate by RPI from April 2027.

The Budget 2026 document keeps the 5p cut for six more months, to 1 July 2027, and moves the planned RPI increase to the same date. HM Treasury's policy costings set out what follows: on 1 July 2027, the rates rise by 5p a litre and by RPI, and from 1 April 2028 they rise by RPI each year. The Office for Budget Responsibility (OBR) puts the main rate after the July 2027 rise at 60.59p (Economic and fiscal outlook, October 2026, paragraph 3.19). The rate before the Budget from 1 April 2027 is our assumption; the appendix sets it out.

Period	Days	Rate before the Budget	Rate after the Budget	Duty saved a litre	Duty and VAT saved a litre
To 31 December 2026	–	52.95p	52.95p	0p	0p
1 January to 28 February 2027	59	55.95p	52.95p	3.00p	3.60p
1 to 31 March 2027	31	57.95p	52.95p	5.00p	6.00p
1 April to 30 June 2027	91	60.59p	52.95p	7.64p	9.17p
1 July 2027 to 31 March 2028	275	60.59p	60.59p	0p	0p
From 1 April 2028	–	Rises with RPI	Rises with RPI	0p	0p

VAT at 20% applies to the pump price, which includes the duty. If retailers pass the change on in full, a 50-litre tank costs about £2 less in January or February 2027, £3 less in March 2027 and £5 less from April to June 2027.

Main fuel duty rate before and after the Budget

Pence per litre of petrol or diesel, before VAT, January 2027 to March 2028

The examples are households that use 500, 1,000 and 2,000 litres of petrol or diesel a year, spread evenly over each tax year. 1,000 litres is about 19 litres a week. See the appendix for the household definitions and tax years.

Fuel use a year	Fuel duty saved	VAT saved	Total saved, 2026-27	Total saved, 2027-28	Total saved
500 litres	£14	£3	£6	£11	£17
1,000 litres	£28	£6	£12	£22	£34
2,000 litres	£56	£11	£24	£43	£67

The same saving by litres bought a week:

Litres a week	A year	Saved, January and February 2027	Saved, March 2027	Saved, April to June 2027	Total, 1 January to 30 June 2027	2026-27	2027-28
10 litres	about 520 litres	£3	£3	£12	£18	£6	£11
20 litres	about 1,040 litres	£6	£5	£24	£35	£13	£23
40 litres	about 2,090 litres	£12	£11	£48	£70	£25	£45
60 litres	about 3,130 litres	£18	£16	£72	£106	£38	£68

Figures may not sum because of rounding.

The household calculator on PolicyEngine's Autumn Budget 2026 dashboard includes a driver with a long commute, who spends £2,600 a year on petrol and diesel. At PolicyEngine UK's pump prices, 150.8p a litre for petrol and 170.6p for diesel, that buys about 1,620 litres a year. The measure saves this driver £20 in 2026-27 and £35 in 2027-28.

The saving rises in proportion to the fuel that a household uses. A household with no car, or with an electric car only, pays no fuel duty and sees no change.

Saving from the fuel duty measure by fuel use

Lower fuel duty and VAT for a petrol or diesel car, by tax year

The measure lowers a tax on spending, so it does not change any income that taxes or benefits depend on. The table shows household net income in 2027-28 for three households that each use 1,000 litres a year. The appendix gives each household's rent, council tax and State Pension.

Household	Benefits in 2027-28	Net income without the measure	Net income with the measure	Change
Single adult, £30,000 salary	None	£24,333	£24,355	£22
Couple with two children, one earner on £25,000, renting privately	Universal Credit £16,441, Child Benefit £2,419	£38,045	£38,067	£22
Single pensioner on the full new State Pension, renting from the council	Housing Benefit £7,682, Council Tax Reduction £1,564, Winter Fuel Payment £200	£20,002	£20,024	£22

The table shows the fuel duty measure on its own. It leaves out the Budget's other measures: under the Pension Tax Allowance, for example, the pensioner would pay no income tax in 2027-28, instead of £93.

In each household, net income rises by the £22 saving on duty and VAT, and no benefit, income tax or National Insurance amount changes. In 2026-27, each household gains £12 in the same way.

The measure does not interact with other programmes in PolicyEngine UK, for three reasons:

• Means tests use income, not spending. Universal Credit, Pension Credit, Housing Benefit and Council Tax Reduction depend on income and capital. Fuel duty enters only the household's taxes, so the lower pump price does not reduce any award.
• Benefit uprating does not change. In PolicyEngine UK, benefit uprating comes from fixed forecast inputs, which the measure does not change.
• Marginal tax rates do not change. Each household's effective marginal tax rate is the same with and without the measure: 28% for the single adult, 68% for the couple on Universal Credit and 66% for the pensioner on Housing Benefit in 2027-28.

PolicyEngine's Autumn Budget 2026 dashboard runs the same measure on its representative sample of UK households. The appendix describes the run and compares it with the Treasury's costing.

Tax year	Fuel duty: PolicyEngine	VAT: PolicyEngine	Total cost: PolicyEngine	HM Treasury (Table 6.1)
2026-27	−⁠£251 million	−⁠£50 million	−⁠£301 million	−⁠£575 million
2027-28	−⁠£434 million	−⁠£87 million	−⁠£521 million	−⁠£780 million
2028-29 onwards	£0	£0	£0	£0

PolicyEngine's estimate is static; the Treasury's includes a demand response.

The Budget states that the measure supports 35 million individual motorists, as well as businesses across the UK. In PolicyEngine's data, 21.7 million of the 29.2 million households in 2026-27, or 74%, buy petrol or diesel and gain from the measure. The other 26% buy none and see no change.

Household net income rises by an average of £10 in 2026-27 and £18 in 2027-28, across all households.

In cash terms, the average gain in 2027-28 rises from £12 in the lowest income decile to £24 in the ninth. As a share of income, it falls from 0.047% in the lowest decile to 0.014% in the highest.

Average gain by income decile

Change in household net income, £ a year, by income decile (1 = lowest) and tax year

Gain as a share of income by income decile

Change in household net income, % of baseline income, by income decile (1 = lowest) and tax year

The absolute poverty rate before housing costs does not change. The Gini index of equivalised household net income falls by 0.01% in 2026-27 and 0.02% in 2027-28.

PolicyEngine UK's tax years run from 6 April to 5 April, so 2026-27 covers 1 January to 5 April 2027 and 2027-28 covers 6 April to 30 June 2027. HM Treasury's figures use fiscal years from 1 April to 31 March, so the first five days of April 2027 fall in a different year.

Net income is PolicyEngine UK's household net income: income from all sources and benefits, less direct taxes, council tax, the TV licence and the modelled duties, with the VAT change on fuel included. All three households live in London, PolicyEngine UK's default region. The single adult is 40. The couple are both 35, with children aged 8 and 5; they pay £9,600 a year in rent and £1,800 in council tax, and claim Universal Credit. The pensioner is 72, gets the full new State Pension (£13,036 in 2027-28), pays £7,800 in rent and £1,600 in council tax, and gets Housing Benefit and Council Tax Reduction; their income is above the Pension Credit guarantee, so they get no Pension Credit. Their net income includes the £200 Winter Fuel Payment. The 2027-28 benefit amounts are PolicyEngine UK projections on the OBR's October 2026 forecast, the forecast that PolicyEngine's Autumn Budget 2026 dashboard uses.

The model's pump prices are fixed and below October 2026 prices, when diesel was above £2 a litre, so the same spending buys fewer litres today; the examples in this post are set in litres for that reason.

No source gives the pre-Budget rate from 1 April 2027, because the government had not set it. We assume that the RPI increase that the Budget moves to July was due in April at the same size, so the rate before the Budget is 60.59p from 1 April 2027. PolicyEngine's Autumn Budget 2026 dashboard uses the same assumption. With PolicyEngine UK's own projection for April 2027, 59.75p, the April to June saving is 6.80p a litre instead of 7.64p, and the 2027-28 saving for 1,000 litres is £19 instead of £22.

The same main rate applies to petrol and diesel across the UK. Retailers in Rural Fuel Duty Relief areas claim 5p a litre back both before and after the Budget, so the saving is the same if they pass the relief on. The costing also applies a proportionate cut to the rates for other fuels and rebated fuels, where practical; this post covers petrol and diesel only.

The effective marginal tax rate is the share of an extra £1 of earnings that a household loses through taxes and lower benefits: 1 minus the change in household net income, as PolicyEngine UK's marginal_tax_rate defines it.

The poverty measure is the Households Below Average Income (HBAI) absolute measure before housing costs: a person is in absolute poverty if their household's equivalised income before housing costs is below 60% of the 2024-25 median, held constant in real terms. HBAI income deducts direct taxes but not taxes on spending such as fuel duty and VAT, so the measure does not include the saving. Deciles rank households by equivalised HBAI household net income before housing costs, with a tenth of people in each decile. The share of income uses each decile's total household net income.

PolicyEngine's Autumn Budget 2026 dashboard runs the same measure on its representative sample of UK households, with PolicyEngine UK 2.151.0 on the OBR October 2026 forecast. The results in the main text come from a run of the dashboard's measure on 28 October 2026.

PolicyEngine's total cost is the fall in fuel duty plus the fall in VAT on the lower pump price; no benefit changes, so it equals the rise in household net income, and negative figures are costs. VAT is 17% of the total. The OBR scores the Treasury's figure as fuel duty receipts, with no VAT line (Economic and fiscal outlook, October 2026, detailed forecast tables, policy, Table 1.1). The two estimates also differ in coverage and timing. PolicyEngine covers the petrol and diesel that households buy, which carry £13.4 billion of fuel duty in 2026-27 in PolicyEngine's data; the OBR expects £24 billion of fuel duty receipts in that year. The Treasury's base is every litre of taxable fuel made available for use in the UK, which includes fuel that businesses buy, and its costing allows for people buying more fuel when pump prices fall (policy costings, page 13). PolicyEngine gives the change in liability in each tax year, from 6 April; the Treasury gives the change in receipts in each fiscal year, from 1 April.

• The worked examples and the net income table come from household calculations for hypothetical households. The population results come from a microsimulation of the dashboard's measure, which is static and covers household fuel only.
• The examples hold the litres that each household buys fixed. HM Treasury's costing includes a response in which people buy more fuel when prices are lower; we do not model it.
• We assume that retailers pass the full duty change, and the VAT on it, into pump prices. Pump prices also depend on oil prices and retail margins, which we hold fixed.
• The pre-Budget rate from 1 April 2027, 60.59p, is our assumption, as set out above. After 1 July 2027, the rate path is the same with and without the Budget measure, so later RPI forecasts do not change the results.
• The examples cover cars that run on petrol or diesel. The Budget also extends the 3.7p cut to red diesel to 1 July 2027 (Table 6.1, row 18) and keeps the HGV road tax holiday to 1 July 2027. This post does not cover those measures, or the increase in tax-free mileage rates.
• Outside the model, fuel bought for business use is a cost for the self-employed and for employers. A lower duty raises the profits of self-employed drivers by the amount they save (the duty only, for VAT-registered businesses, which reclaim VAT), which can raise their income tax and lower their Universal Credit. This post covers household fuel only.

The Budget estimates that the government's fuel duty decisions in this Parliament save the average car driver £230, compared with the previous government's plans. That figure compares current policy with a baseline in which the 5p cut ended in April 2025 and rates rose with RPI each April from then (Budget 2026, footnote 98). The figures in this post cover the Budget 2026 measure only.

We used the policyengine Python package (version 6.11.1) with PolicyEngine UK (version 2.151.0). We ran calculate_household for each household with two parameter reforms to the fuel duty rate on petrol and diesel: one with the pre-Budget rates and one with the Budget rates, each keyed to the dates above. PolicyEngine UK keys its April 2027 rate at 59.75p, uprated by the March 2026 RPI forecast, so both scenarios replace it with 60.59p. PolicyEngine UK weights each rate by the days it applies in the tax year. The net income table and the marginal rates run on the OBR October 2026 forecast: we build each household as a PolicyEngine UK simulation with the dashboard's forecast scenario, applied before data load, and add the measure to the same scenario. The duty and VAT savings do not depend on the forecast.

PolicyEngine UK holds spending on fuel fixed and does not pass a duty change into VAT, so we add 20% of the duty change for the VAT on the pump price. In those simulations, the VAT step lowers the household's vat by that amount, so the change flows through vat_change into household_net_income, as the dashboard's VAT modifier does. We use the rates, dates and VAT treatment of the fuel duty measure in PolicyEngine's Autumn Budget 2026 dashboard. The saving is linear in litres, so the chart plots its value every 100 litres, computed from the rules and checked against PolicyEngine UK at each point.

The population results come from a run of the dashboard's measure on PolicyEngine's certified UK household data. We reproduced them in a separate run with the same package, data and forecast: the cost is £301 million in 2026-27 and £521 million in 2027-28, of which VAT is 17%, and the average gain is £10 and £18 a household.