Reducing duty on petrol and diesel has been raised again in the UK as a solution to the rising cost of living, this time by the Liberal Democrats. Daisy Jameson argues that this is a poorly judged policy that fails to protect the most vulnerable households, weakens the incentive to switch to electric vehicles and fails to capture the true cost of driving in the UK.
At their party conference this month the Liberal Democrats called for a 10p cut to fuel duty in response to the rising cost of living. This cut would follow years of cuts and freezes in the tax paid on fuel at the pump.
Fuel duty raises £24 billion a year for the Exchequer, and the temporary 5p cut already in place costs £2.4 billion annually. The headline rate has been frozen since 2011–12 and still includes the reduction introduced in 2022–23, repeatedly extended since. Cutting it further would have negative consequences for the UK’s fiscal sustainability and, as demonstrated by the last 15 years, ‘temporary’ cuts to fuel duty tend to be permanent.
Cutting fuel duty has significant trade-offs and is unfair
Freezing and cutting fuel duty fails to adequately price the social costs of driving. In 2025 the total cost was made up of congestion (83%), road traffic accidents (12%), greenhouse gas emissions (3.3%), noise (1%), poorer air quality (0.5%) and infrastructure maintenance costs (0.5%), according to the Institute for Fiscal Studies. It has been estimated that the freeze in fuel duty alone has led to carbon emissions 7% higher than had there not been a freeze. Cutting fuel duty further would widen the gap between the private and social costs and further entrench society’s dependency on cars.
As argued previously by CETEx, the most effective measures for supporting households are those that are targeted to the most vulnerable. Subsidising fuel prices is a blunt, untargeted instrument. The fuel duty freeze in fact awards the richest decile £159 in support, compared with just £68 for the lowest decile. The policy also does nothing to support those without a car (who are disproportionately on a low income).
It is also questionable whether cuts to fuel duty are fully passed on to prices paid by consumers. The Competition and Markets Authority has found competition between fuel retailers to be persistently weak, with margins at historically high levels (supermarket fuel margins were 8% in 2025, double their 2017 levels). A fuel duty cut partly absorbed into retailer margins would not deliver the full benefits to consumers from the additional fiscal expenditure.
Finally, such a move makes running an internal combustion engine (ICE) vehicle cheaper relative to the cost of running an electric vehicle (EV), especially with the introduction of the per-mile tax for EVs starting in April 2028, just 19 months away. The introduction of electric vehicle excise duty (eVED) is designed to plug the growing hole that fuel duty will leave as drivers shift to EVs. Therefore, cutting fuel duty at the same time is poor signalling when switching to an EV will better protect drivers from ongoing and future fuel supply shocks. Subsidising fuel consumption further increases this exposure.
The Government has taken some welcome steps to lower the relative cost of public transport by capping some bus and train fairs, but this will have minimal impact on many rural and other areas poorly served by public transport. Furthermore, some people necessarily rely on driving in their day-to-day life and public transport, even where available, would be an insufficient alternative to this. A blanket fuel duty cut would not adequately target these households. A more targeted package could help support those most exposed to higher fuel costs.
More sustainable models to help drivers
Instead of lowering fuel duty, the Government should continue to enact moves to encourage cheaper and more environmentally sustainable driving, such as lowering the cost of EV charging, especially on-street charging which costs significantly more than off-street charging. It could also consider increasing the grant for the purchase of an EV, and direct targeted support to specific postcodes that are lagging behind in the charging rollout and are poorly served by public transport.
Support for EV uptake and charging will not, however, address the immediate pressures on lower-income households. To better target immediate support, the UK could copy France’s approach. In 2023, the French Government switched its fuel support policy from a blanket at-the-pump discount on fuel prices to a targeted assistance programme for only lower-income workers who need a vehicle to get to work. It also provides a per-litre subsidy for non-road diesel for farmers and construction company trucks. The policy covered the bottom 50% of households by income and reached around 10 million low-income commuters. It was paid per working person, rather than per household. In 2026, France announced it would continue to target support for heavy fuel users on a low income rather than applying a general VAT reduction, costing an estimated €1.4 billion. A similar policy in the UK would go some way to addressing the untargeted nature of the support that acts as an incentive to increase driving.
Delivering support this precisely may require new and innovative data collection. The UK faced significant data challenges during the 2022–23 energy crisis and fell back on providing largely universal support. It should be a priority to build this capacity in government to be able to deploy support during this crisis and future expected crises.
A further cut to fuel duty is an expensive, poorly targeted, and fiscally and environmentally unsustainable policy move. There are more effective ways to support households.
The author would like to thank Sini Matikainen and Rob Patalano for their review.