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Fuel duties

This Forecast in-depth page has been updated with information available at the time of the March 2024 Economic and fiscal outlook. We are aware of a technical issue with our tableau charts across the site. Access the data from our March 2024 forecast supporting spreadsheets directly.

Fuel duties are levied on purchases of petrol, diesel and a variety of other fuels. They represent a significant source of revenue for government. In 2023-24, we expect fuel duties to raise £24.7 billion. That would represent 2.2 per cent of all receipts and is equivalent to £850 per household and 0.9 per cent of national income.

Fuel duty is levied per unit of fuel purchased and is included in the price paid for petrol, diesel and other fuels used in vehicles or for heating. The rate depends on the type of fuel:

  • the headline rate on standard petrol and diesel is 52.95 pence per litre, it has been frozen since 2011-12 and it reflects a temporary 5 pence cut introduced in 2022-23 and subsequently extended to 2023-24 and 2024-25. This also applies to biodiesel and bioethanol;
  • the rate on liquefied petroleum gas is 28.88 pence per kilogram;
  • the rate on natural gas used as fuel in vehicles (e.g. biogas) is 22.57 pence per kilogram; and
  • the rate on ‘fuel oil’ burned in a furnace or used for heating is 9.78 pence per litre.

VAT is applied after fuel duty, so, for example, the pump price of a litre of petrol currently reflects the pre-tax price plus 52.95p for fuel duty plus 20 per cent VAT on the pre-tax price and a further 10.59p for VAT at 20 per cent on fuel duty.

  Forecast methodology

Forecast process

The OBR commissions forecasts of fuel duty receipts from HM Revenue & Customs for each fiscal event. The forecasts start by generating an in-year estimate for receipts in the current year, then use a model to forecast growth in receipts from that starting point. We provide HMRC with economic forecasts that are used to generate the tax forecasts. These are scrutinised in a challenge process that typically involves two rounds of meetings where HMRC analysts present forecasts to the Budget Responsibility Committee and OBR staff. This process allows the BRC to refine the assumptions and judgements that underpin the forecasts before they are published in our Economic and fiscal outlooks (EFOs).

Forecasting models

Road fuel duty receipts are estimated by multiplying taxable fuel consumption – known as ‘fuel clearances’ – by the corresponding duty rate.

Our fuel clearances forecast involves three steps:

    • We forecast total distances that will be travelled. This uses an econometric model that relates distances travelled to domestic consumption (petrol) and real GDP (diesel) and the real price per kilometre travelled. That real price reflects our forecasts for pump prices, which in turn reflect assumptions about the dollar oil price, the sterling/dollar exchange rate and how changes in crude oil prices are fed through to pump prices.
    • We make assumptions about the proportion of total distance travelled by electric vehicles as these will not generate petrol and diesel clearances.
    • Finally, we make assumptions about trends in fuel efficiency to derive the total amount of fuel consumed to travel the number of miles we forecast.

The Government sets out policy assumptions for the uprating of fuel duty each year. Based on announced policy, petrol and diesel duty rates are set to rise by 5p (in March 2025) plus RPI inflation (in April 2025) and by RPI inflation every year thereafter.

Duties on other types of fuel such as heating oil raise small amounts. They are forecast based on simple assumptions derived from historical growth rates.

Main forecast determinants

The main determinants of our fuel duty forecast are those related to the tax base and those that are used by the Government in setting parameters of the tax system. See the ready reckoners section below for more information on the effects of these determinants on fuel duty receipts.

Main forecast judgements

The most important judgements in our fuel duty forecast are related to the economy forecast that underpins it – the most important being domestic consumption and real GDP that are used to proxy demand for road travel and hence the underlying demand for fuel in the economy, and inflation which determines the future duty rates (assuming that the government implements its stated policy). Alongside those, we need to make several other forecast judgements. These include:

    • In-year estimate – our estimate for fuel duty receipts in the current year is determined by performance of receipts in the year-to-date, developments in determinants of the tax base and any other indications from HMRC’s receipts monitoring. The in-year estimate determines the starting point from which we use our model to forecast receipts growth;
    • The relationship between economic activity, the cost of driving and distance travelled – the extent to which distances travelled are affected by changes in household income and business activity (which are proxied by domestic consumption and real GDP, respectively) and fuel prices is an important assumption in the forecast. We estimate these relationships based on historical data;
    • Fuel efficiency – the average amount of fuel consumed to travel a kilometre determines the amount of fuel that will be bought for a given distance travelled. We forecast average fuel efficiency in line with projections published by the Department for Transport in the TAG databook.
    • We also make assumption about the increasing use of electric vehicles over the forecast period. We last provided an update on our EV assumption in Box 4.2 of our November 2023 EFO.

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  Previous forecasts

Although fuel duties have been significantly lower than many of our earlier forecasts, this mainly reflects a series of policy decisions to freeze or cut rates. Budget 2011 announced both a cut in the duty rate and the cancellation of previously announced above-inflation rises. The main rate of fuel duty has been frozen since then and temporarily reduced by 5 pence per litre in 2022-23, 2023-24 and 2024-25. The policy section below sets out how fuel duty policy has been changed at many of the Budgets and Autumn and Spring Statements since 2010.

The coronavirus outbreak and the public health measures taken to contain it led to a significant decline in economic activity and travel, and hence receipts in 2020-21 were significantly weaker than in previous forecasts.

Receipts have been revised down again in our recent forecasts, largely reflecting the cost of extending the temporary 5p cut to duty rates and cancelling RPI indexation of the duty rate.

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  Policy measures

Since our first forecast in June 2010, the Coalition and Conservative Governments have announced a number of policy measures affecting our forecast for fuel duty. A large number of these policies are related to the cutting or freezing the main duty rate. The original costings for these measures are contained in our policy measures database and were described briefly in the Treasury’s relevant Policy costings document. For measures announced since December 2014, the uncertainty ranking that we assigned to each is set out in a separate database. For those deemed ‘high’ or ‘very high’ uncertainty, the rationale for that ranking was set out in Chapter 3 (previously Annex A) of the relevant EFO.

Fuel duty policy has been changed at most Budgets and Autumn Statements since 2010, with previously planned rises repeatedly postponed or cancelled. Specifically:

    • in Budget 2011, the Government cancelled the pre-existing fuel duty escalator (where fuel duty rates were due to rise in line with RPI inflation plus a penny a litre in every year until 2014-15). The rate was also cut by one penny a litre in April 2011. The April 2011 RPI rise was delayed until January 2012 and the April 2012 rise was delayed until August 2012;
    • in Autumn Statement 2011, it delayed the planned January 2012 RPI rise until August 2012 – thereby planning a rise before the next Autumn Statement;
    • in June 2012, it delayed the planned August 2012 RPI rise until January 2013;
    • in Autumn Statement 2012, it cancelled the planned January 2013 RPI rise and pushed back each subsequent year’s April RPI rises until the end of the Parliament to September;
    • in Budget 2013, it cancelled the planned September 2013 RPI rise;
    • in Autumn 2014, it cancelled the planned September 2014 RPI rise;
    • in Budget 2015, it cancelled the planned September 2015 RPI rise;
    • in Budget 2016, it cancelled the planned April 2016 RPI rise;
    • in Autumn Statement 2016, the Government cancelled the planned April 2017 RPI rise;
    • in Autumn Budget 2017, the Government cancelled the planned April 2018 RPI rise;
    • in Autumn Budget 2018, the Government cancelled the planned April 2019 RPI rise;
    • in Spring Budget 2020, the Government cancelled the planned April 2020 RPI rise;
    • in Spring Budget 2021, the Government cancelled the planned April 2021 RPI rise;
    • in Autumn Budget 2021, the Government cancelled the planned April 2022 RPI rise
    • in Spring Statement 2022, the Government temporarily reduced main rates of petrol and diesel by 5 pence per litre (and other rates proportionately) for 12 months from April 2022;
    • in Spring Budget 2023, the Government cancelled the planned April 2023 RPI rise and extended the temporary 5p reduction to the main rates of petrol and diesel for a further 12 months; and
    • In Spring Budget 2024 the Government cancelled the planned April 2023 RPI rise and extended the temporary 5p reduction to the main rates of petrol and diesel for a further 12 months.

These successive policy changes are something to note when considering our fuel duty receipts forecast. Parliament has stipulated that our forecasts be based on the Government’s stated policies and that we must not consider alternatives. The Government states that fuel duty will be uprated by RPI inflation in the future, but has not done so in the past decade. Parliament also requires us to note risks to our forecast: the possibility that the actual path of fuel duty rates policy will differ from the Government’s current stated policy is a risk that we have noted in successive forecasts. In our March 2024 EFO we highlight the risk that fuel duty receipts in 2028-29 would be £4.8 billion lower than in our central forecast if the Government were to keep duty rates constant at their current level.

March Budget 2020 announced a measure to restrict the eligibility to use cheaper ‘red diesel’, removing the relief from around three-quarters of existing consumption and requiring more users to pay the higher main rate of duty. Spring Budget 2021 reversed the effect of this for some sectors by extending the relief to fairgrounds, winter wonderlands, circuses, amateur sports clubs, golf clubs, and inland passenger ferries.

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  Ready reckoners

‘Ready reckoners’ show how our fiscal forecasts could be affected by changes in selected economic determinants. They are stylised quantifications that reflect the typical impact of changes in economic variables on receipts and spending. These estimates are specific to our March 2023 EFO and we would expect them to become outdated over time, as the economy and public finances, and the policy setting, continue to evolve. They are subject to uncertainty because they are based on models that draw on historical relationships or simulations of policy settings. More information can be found in the ‘ready reckoners’ spreadsheet available on our data page.

The table below shows that:

    • higher real GDP (which is used as a proxy for demand for fuel) would increase fuel duty receipts due to increases business spending;
    • higher household consumption (which is used as a proxy for demand for fuel) would increase fuel duty receipts due to increases in household spending;
    • higher RPI inflation would increase fuel duty receipts (in line with the uprating assumptions set out by the Government, our default assumption is that duty rates are indexed in line with RPI);
    • higher oil prices would reduce the demand for fuel by raising its price. That would therefore reduce fuel duty receipts because fuel duty is charged on the number of litres consumed.
WordPress Data Table

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