Key points:
- The 5p fuel duty cut and the RPI freeze are extended to 1 July 2027.
- The £1 VED rate for most HGVs continues until 30 June 2027.
- The 3.7p cut to red diesel duty is also extended to 1 July 2027.
- The main writing-down allowance falls to 12%, while the first-year allowance rises to 50%.
- The RHA’s call for a 15p-per-litre Essential User Rebate was not taken up.
Fuel duty: no 5p rise in January
According to the Budget document, the government is cancelling plans to add 5p back onto fuel duty from January 2027. Instead, the temporary cut is extended for a further six months, to 1 July 2027. The planned increase in line with the Retail Prices Index (RPI) is also deferred until then.
The 5p cut was first introduced in March 2022 after Russia’s invasion of Ukraine. It has since been extended several times, most recently in May, in response to high fuel prices caused by the conflict in the Middle East.
The Treasury says diesel exceeded £2 per litre in October 2026, and that diesel prices in the UK rose by 41% between February and October. According to the government, its decisions on fuel duty in this Parliament will have saved the average HGV driver nearly £4,000 compared with the plans of the previous government. For light goods vehicles, the saving is £472.
The government added that it “will continue to monitor fuel prices over the coming months”.
HGV road tax holiday continues
In July, the government introduced a reduced annual vehicle excise duty (VED) rate of £1 for most HGVs. It applies to licences and renewals taken out between 1 July 2026 and 30 June 2027. According to the Treasury, this saves about £600 for a typical HGV, based on the £601 rate for tax band E1.
The Budget adds one change. From 28 October 2026, if a keeper obtains the £1 rate for more than 12 months, the excess benefit may be recovered from them as a civil debt.
VED rates for cars, vans and motorcycles will rise in line with RPI from 1 April 2027.
Red diesel and mileage rates
The 3.7p-per-litre cut to red diesel duty is extended to 1 July 2027, keeping the rate at its lowest level in more than 20 years. After that date, red diesel duty will return to its pre-March 2022 rate and be uprated with RPI.
The government is also making permanent the tax-free mileage rate of 55p per mile for the first 10,000 business miles in a car or van. Above 10,000 miles, the rate rises from 25p to 35p.
Investment: capital allowances change
For operators planning fleet investment, the Budget brings mixed news:
- full expensing for companies stays in place,
- the main rate of writing-down allowances falls from 14% to 12% from April 2027,
- the main rate first-year allowance rises from 40% to 50%.
The headline rate of corporation tax remains capped at 25%.
Electric vehicles, CBAM and wages
Other measures relevant to transport companies include:
- eVED: the mileage-based charge for electric and plug-in hybrid cars will start in April 2028, with an opt-in “eVED Connect” system to report mileage automatically,
- charging: eligible EV charging points and EV-only forecourts already receive 100% business rates relief for ten years from April 2026, and the government is adding £100 million to cut costs at lower-powered public chargers,
- ZEV mandate: the response to the review is due by the end of 2026, with changes from 2027,
- CBAM: country-specific default values will replace global default values from 2029, and the scheme may be extended to refined products,
- National Living Wage: it will rise by 3.9% to £13.21 per hour from 1 April 2027.
For more on what UK CBAM means for transport paperwork from January, see our article on net mass records.
What the industry asked for
Before the Budget, the Road Haulage Association (RHA) set out three demands: freeze fuel duty, end automatic RPI increases and introduce a 15p-per-litre Essential User Rebate for six months. RHA managing director Richard Smith wrote that a freeze “is therefore necessary, but it cannot resolve the pressures already within these businesses”.
The freeze was granted, but the link to RPI remains, and there is no rebate for hauliers.
Logistics UK had said that keeping the 5p cut would be “a pragmatic measure that keeps trade moving”, according to its Chief Executive Ben Fletcher. The day before the Budget, the association also published a report showing that the UK logistics sector underpins £356 billion of economic activity.
The longer-term question remains open. With fuel duty receipts set to fall as vehicles go electric, the debate on road pricing is likely to return before the 1 July 2027 deadline.
