Drivers have been warned to brace for a tough 2026 amid reports that Rachel Reeves could introduce new car taxes at the Autumn Budget have come to light.
The Chancellor is set to unveil the Budget on November 26 with the hope of restoring faith in public finances, but there has been growing speculation that drivers could be footing the bill.
Since March 26, when the Spring Statement took place, experts have been warning of the need to reform Vehicle Excise Duty as well as address fuel duty income to help stabilise the £22billion financial black hole.
As part of new reforms, the Chancellor could announce several changes to the Budget which may impact drivers across the UK.
The most likely change would be ending the 15-year fuel duty freeze, experts explained, which has kept petrol and diesel prices moderately lower for motorists.
Last year, the Chancellor extended the freeze for another year until March 2026, but after growing pressure from experts such as tax firm RSM, this could be axed.
Sheena McGuinness, Co-Head of Energy and Natural Resources at RSM UK, warned that the push towards electric vehicles as part of the Zero Emission Vehicle mandate has caused fuel duty receipts to plummet.
Ms McGuiness shared: “The Chancellor will need to find an additional £2.7billion from alternative sources. As such, it seems highly likely we will see a change to fuel duties in the forthcoming Autumn Budget.”
The Chancellor could end the fuel duty freeze and unveil new car taxes at the Autumn Budget
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She warned that while changes to fuel duty could offer a short-term solution for raising revenue, this measure alone will not be enough to stabilise public finances, with a more permanent solution needed.
“The only sustainable solution is to develop an alternative fuel duty for the increasing number of EVs in the UK,” Ms McGuiness warned.
The ZEV mandate outlines that new petrol and diesel car sales will be banned by the end of the decade, while manufacturers must have a minimum percentage of sales come from electric vehicles.
The expert added: “We could therefore see the introduction of a price-per-mile scheme in the Budget, which would represent a significant policy shift from the Government’s previous stance ruling out such measures.”
Rhydian Jones, motoring expert at Confused.com, added that discussions around the possibility of introducing a pay-per-mile tax for drivers have peaked in the past few months.
If Ms Reeves were to opt for this tax system, motorists would pay tax based on how much they drive, rather than a fixed yearly amount depending on car emissions.
“This could benefit those who drive less, such as remote workers and pensioners, but it could also raise costs for those who rely on their cars more heavily, including commuters and families in rural areas,” Mr Jones detailed.
But the Government had previously shut down on speculation around pay-per-mile car taxes, with an HM Treasury spokesperson telling GB News: “We have no plans to introduce road pricing. We are committed to supporting our automotive sector as we transition to electric vehicles to meet our legally binding climate targets.”
Experts have called on the Chancellor to unveil a new car tax system at the Autumn Budget
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GETTYDespite this, Mr Jones stated that pay-per-mile would mark a major shift in how motorists are taxed and “could redefine the cost of driving for millions across the UK and could also give another boost to drivers going green in an effort to cut down on longer-term costs”.
The Resolution Foundation has also called for an overhaul of the UK car tax system to be announced at the Autumn Budget.
James Smith, Research Director at the Resolution Foundation, said: “The Chancellor should look to make sensible tax reforms to car taxes, dividends and capital gains.”
Mr Jones encouraged drivers to stay informed about how their vehicle could be affected at the Autumn Budget and to have a better understanding of what they’re paying before any changes are announced.