Impact of the Autumn Budget fuel duty freeze
PolicyEngine estimates that the fuel duty freeze costs £3.5 billion in 2026-27 and reduces income inequality by 0.21% as measured by the Gini index.
Contents
Economic impacts
Revenue impact
Distributional impact
Winners and losers
Constituency impact
Inequality impact
Conclusion
In the Autumn Budget 2025, the Government announced a five-month freeze to fuel duty rates until September 2026, at which point the five pence cut first introduced in 2022 will be reversed through a staggered approach. From April 2027, the Government has stated that fuel duty rates will then be uprated annually by RPI. Previously announced increases to fuel duty rates have now been postponed for 16 consecutive years. The total cost of fuel duty freezes from 2010-11 to 2026-27 has risen to £120 billion.
To understand the impact of this policy, we follow OBR methodology to compare it against a baseline that assumes the five pence cut would have ended in March 2026 as previously planned. Table 1 shows how fuel duty rates differ between these two scenarios across different time periods.
Table 1: Fuel duty rates under baseline and announced policy (pence per litre)
The baseline assumes the 5p cut ends on March 22, 2026, returning the rate to 57.95p, followed by RPI uprating from April 2026 onwards (4.1% in 2026-27, 3.2% in 2027-28, 2.9% in 2028-29, and 2.9% in 2029-30). The announced policy maintains the freeze at 52.95p until September 2026, then implements a staggered reversal with increases of 1p, 2p, and 2p over three-month periods, reaching 57.95p by March 2027. Both policies then apply the same annual RPI uprating from April 2027 onwards.
In the following sections, we estimate the revenue impact and distributional effects of the fuel duty freeze across income deciles, examine how the policy affects income inequality, and analyse impacts across UK constituencies.1
Economic impacts#
Revenue impact#
We estimate the revenue impact of the fuel duty freeze policy across fiscal years and compare our estimates with official OBR projections. Table 2 shows the cost of maintaining frozen rates rather than implementing the planned policy trajectory.
Table 2: Revenue impact of fuel duty freeze (£ billion)
PolicyEngine estimates the freeze reduces revenue by £3.5 billion in 2026-27, followed by £1.6 billion in 2027-28, £1.5 billion in 2028-29, and £0.9 billion in 2029-30. The OBR projects revenue reductions of £2.4 billion in 2026-27 and £0.9 billion annually thereafter.
Distributional impact#
Figure 1 shows the absolute change in household income by income decile from the fuel duty freeze across fiscal years 2026-27 through 2029-30.
Figure 1: Absolute change in household income by income decile, 2026-27 to 2029-30
In 2026-27, the average household gains £109 from the fuel duty freeze. Higher income deciles gain more in absolute terms, with the tenth decile gaining £159 compared to £68 for the lowest decile. This pattern reflects higher vehicle ownership and fuel consumption among wealthier households. The gains decrease in subsequent years as the staggered reversal of the 5p cut takes effect.
Winners and losers#
Figure 2 shows the distribution of impacts across the population for fiscal years 2026-27 through 2029-30, categorising people by the magnitude of income changes they experience.1
Figure 2: Population share by income change from fuel duty freeze, 2026-27 to 2029-30
In 2026-27, 49.5% of the population gains from the freeze, with around half of households experiencing no change. The majority of beneficiaries experience income increases of less than 5%.
Constituency impact#
Figure 3 shows the average net income change across UK parliamentary constituencies from the fuel duty freeze in 2026-27.
Figure 3: Average net income change by constituency from the fuel duty freeze in 2026-27
Average net income changes vary across constituencies, with all experiencing positive impacts. The distribution ranges from increases of 0.11% to 0.28%. The five constituencies with the largest relative gains are St Ives (£99.77), North Devon (£102.25), Ynys Môn (£118.59), Isle of Wight East (£98.79), and South Dorset (£98.87).
Inequality impact#
Table 3 shows the fuel duty freeze reduces income inequality across all years. The Gini index falls by 0.21% in 2026-27, declining to 0.05% by 2029-30.
Table 3: Inequality impact of fuel duty freeze
Conclusion#
PolicyEngine estimates the fuel duty freeze costs £3.5 billion in 2026-27. Higher income deciles gain more in absolute terms. The freeze reduces income inequality by 0.21% as measured by the Gini index in 2026-27.
Research Associate at PolicyEngine