UK’s fiscal gap widens amid downward trend in fuel duty revenues
Today’s HMRC monthly tax receipts show fuel duty receipts for April 2025 to August 2025 are £10bn, which is £0.1bn lower than the same period last year. The decline continues to be primarily driven by a shift from diesel towards electric and hybrid vehicles.
Sheena McGuinness, Co-Head of Energy and Natural Resources at RSM UK, said: “Fuel duty receipts continued to decline in August, driven by the ongoing shift from petrol and diesel cars towards electric vehicles (EVs). While this marks encouraging progress towards the UK’s wider net zero ambitions, it also highlights a growing fiscal gap that the government must address. In addition, the Office for Budget Responsibility (OBR) forecasts that fuel duty revenues will represent 2% of total tax revenues in 2025/26, whereas in 2019/20, it made up almost 7% of the UK’s total tax take. This sharp decline further reinforces the need for the Chancellor to end the 15-year freeze on fuel duty in the upcoming Autumn Budget, despite this being an unpopular decision.
“But, cutting the freeze on fuel duty and removing the 5p cut introduced in 2022 would not bring fuel duty revenues back to 2019 levels. The OBR has already costed this into its forecast, but if neither measure is reversed, the Treasury will need to find an additional £2.7bn from elsewhere, further widening the gap in public finances. With oil prices remaining relatively low, and further declines anticipated, any increase in fuel duty would be less acutely felt by working households than in previous years. It is therefore likely that the Chancellor will maintain the freeze and instead resort to a 10p increase on fuel duty, supporting the government’s net zero ambitions and encouraging further EV take up.”
She added: “However, addressing the fiscal black hole requires more than just adjustments to fuel duty. While including electric and low-emission vehicles in the Expensive Car Supplement, alongside making them liable for vehicle excise duty (VED) is a step forward, further measures are needed. Additionally, as most EVs are priced above the £40,000 threshold, this measure alone won’t generate the necessary revenue. One solution could be to adopt a road usage tax similar to those used in Iceland and New Zealand, scaled according to pollution levels. Although this would support GB Energy’s Statement of Strategic Priorities from earlier this week, the government previously ruled this out, so it seems unlikely that the Chancellor will make a U-turn in the Autumn Budget.”