How much tax is in petrol and diesel? Fuel duty and the Budget

The Budget is ten days away, and with it a decision on fuel duty. Unless the Budget changes it, duty on petrol and diesel is legally set to rise by 3p a litre on 1 January, the first increase since 2011, and by another 2p on 1 March.

FuelWise's figures this morning put the UK average for E10 unleaded at 174.2p a litre and standard diesel at 199.2p, down 0.5p and 0.6p on a week ago. Duty is the same at every forecourt; the rest of the price is where shopping around pays.

What is in a litre today

Two taxes sit in every litre of road fuel:

• Fuel duty: a flat 52.95p a litre on petrol and diesel until 31 December 2026, according to HMRC.
• VAT: 20%, charged on the pre-tax price and on the duty, as the House of Commons Library explains. That makes VAT one-sixth of whatever you pay.

On this morning's averages:

• E10 at 174.2p: 52.95p duty, about 29.0p VAT and about 92.2p for everything else. Tax is about 82p, or 47% of the price.
• Diesel at 199.2p: 52.95p duty, about 33.2p VAT and about 113p for everything else. Tax is about 86p, or 43%.

"Everything else" is the pre-tax price: crude oil, refining, transport, and retailers' costs and margins. Because duty is the same on both fuels, the 25p gap between average diesel and petrol prices comes entirely from pre-tax costs and the VAT on them.

What the Budget could change

Duty was cut by 5p in March 2022 after Russia's full-scale invasion of Ukraine sent pump prices soaring. Budget 2025 planned to phase the cut out from September 2026, but on 20 May the government extended it in full to 31 December, citing high fuel prices caused by the Iran war.

HMRC's tables show the legal default from there: 55.95p a litre from 1 January 2027 and 57.95p from 1 March. HMRC says "the government will confirm final rates at Budget 2026", and the Chancellor, John Healey, has confirmed the Budget date of 28 October.

HMRC notes that duty is ordinarily passed on to motorists. If passed on in full, with VAT:

• 1 January: about 3.6p a litre, or about £1.98 on a 55-litre fill.
• 1 March: about 2.4p more, taking the total to 6p a litre, or about £3.30 a fill.

The RAC wants the cut extended and increased, or VAT reduced. "Without action, 3p a litre in duty will be added on 1 January, and another 2p on 1 March," its head of policy, Simon Williams, said on 9 October, adding that Treasury VAT takings from fuel "remain exceptionally high". Because VAT is a percentage, every 10p rise in the pre-tax price adds 12p at the pump.

On the other side, the Commons Library cites OBR figures putting the cost of duty freezes between 2011 and October 2024 at around £120 billion, and notes that duty is at its lowest in real terms since February 1992. The Chancellor's Budget letter said the government would abide by its fiscal rules, keeping a buffer against uncertainty including instability in the Middle East.

The world behind the pre-tax price

Brent crude settled at $109.86 a barrel on Friday 16 October, up 3.7% on the day and its highest settlement since 19 May, The Nation reported. Traders cited two main factors.

The first is the Middle East. A Saudi-led coalition said it had intercepted a ballistic missile headed for Yanbu, the Red Sea oil hub that lets Saudi exports avoid the Strait of Hormuz, Reuters reported. Reuters says the strait has been largely throttled by Iran since the US and Israel attacked the country in February. Iran has said it is stepping up strikes there in response to a US blockade of its ports and tighter sanctions, The Nation reported.

The second is Russian diesel. A main crude unit at the Ryazan refinery stopped after a Ukrainian drone attack on 15 October, the Kyiv Independent reported, citing Reuters.

Diesel is under the most strain. The IEA's October Oil Market Report said global diesel exports in September were 700,000 barrels a day lower than a year earlier, that diesel benchmarks remain nearly double the price of crude, and that the tightness is set to extend into 2027. On 15 October, IEA members agreed to speed up emergency stock releases, including more than 20 million barrels of diesel. President Trump has pressed EU countries to draw down reserves, Reuters reported.

Seven core OPEC+ members, including Saudi Arabia and Russia, agreed on 4 October to keep November production at September's required level. The pound, which matters because oil is priced in dollars, was worth $1.3253 on 15 October, within its 52-week range of $1.3042 to $1.3790, Bank of England figures show.

All of this acts on the pre-tax part of the price. The Commons Library notes that pump prices tend to lag oil price trends, and the RAC has said only a sustained lower oil price, "over several weeks, not days", brings cheaper fuel. There is no sign of Friday's jump at the pumps yet: UK averages were unchanged over the past 24 hours, with 449 price cuts against 300 rises, and 7,989 cuts against 2,722 rises over the week.

The part you can control

Everything but duty varies, and the gaps are bigger than January's scheduled rise:

• Supermarket forecourts averaged 171.6p for E10 and 196.4p for diesel, against 191.2p and 214.7p at motorway services. That 19.6p unleaded gap is more than five times the 3.6p January rise.
• Northern Ireland is the cheapest region, with E10 at 166.6p and diesel at 191.5p. The five cheapest council areas for unleaded are all there.
• Among brands with more than 300 forecourts, Sainsbury's (171.6p), Morrisons (171.8p) and Asda (171.9p) have the lowest average E10, and Shell (176.9p) and BP (176.7p) the highest.
• Where your car can use E10, it saves an average of 17.5p a litre over super unleaded E5, which averages 191.7p.

Cheaper fuel carries less VAT, too: about 26.3p a litre on this morning's cheapest E10 (157.9p), against about 35.0p on the dearest (209.9p).

What to watch on 28 October

For drivers, the Budget questions are whether the January and March duty rises go ahead, change or are delayed, and whether VAT on fuel changes. The oil market will keep setting the pre-tax price; OPEC+ meets again on 1 November. FuelWise will track any effect on the live price map and price index.