UK Budget: Rachel Reeves confounds speculation with surprise fuel duty decision

However, a tax expert said there was “little doubt” it would be increased next year after a 15-year freeze introduced by the previous Conservative government.

Vehicle excise duty (VED) - the former tax disc - for new cars will also increase significantly from April, some from £10 to £110.

Ms Reeves told MPs: “Baked into the numbers inherited from the last government is an assumption that fuel duty will rise by IPR next year and the temporary 5p cut will be reversed.

“To retain the 5p cut and freeze fuel duty again will cost over £3 billion next year. At a time when the fiscal position is so difficult, I have to be frank - this is a substantial commitment to make.

“I have concluded, than in the difficult circumstances and while the cost-of-living remains high, and in a backdrop of global uncertainty, increasing fuel duty would be the wrong choice to make.

“I have decided to freeze fuel duty next year and maintain the 5p cut for another year.”

The Chancellor also announced the VED rate for new electric cars would increase from zero to £10 from April.

The rate for the least polluting petrol and diesel cars, including hybrids, would go up from £10 to £110, and the next band from £30 to £130. Rates for higher polluting cars will double.

Most cars more than a year old are charged a standard rate of £190, which is expected to increase in line with inflation.

Gerry Myton, head of indirect tax at chartered accountants HW Fisher said: "A further freeze in fuel duty, saving all sectors of the economy 8.4p per litre at the pumps (7p duty plus VAT) is welcome, but little doubt that the 2025 budget will bring a duty increase."

The RAC motoring group said drivers would “breathe an enormous sigh of relief” at the announcement.

Head of policy Simon Williams said: “It’s good to see the government firmly recognising the importance of the car to millions of households up and down the country.

“Eight in ten drivers tell us they are dependent on their vehicles for the journeys they need to make, while 70 per cent of commuters who live in rural areas have no other feasible alternatives to get to work beyond taking the car.”

William Porter, a spokesperson for the IAM RoadSmart motoring group, said: “We welcome the Chancellor’s decision to maintain the fuel duty cut, at least for now. Motorists have endured a torrid few years of high prices at the pumps and this decision will give them a much-needed boost.”

But Colin Howden, director of sustainable transport campaigners Transform Scotland, described the Budget as “truly dismal for those who had hoped that Labour would bring about a more progressive approach on transport taxation”.

"The decision to retain the previous administration’s fuel duty freeze further worsens the competitive position of public transport against car use,” he said. “It would appear that UK Labour is interested in 'working people' who drive, but not those who use public transport.”

Climate charity Possible agreed the freeze was “completely the wrong thing to do”.

Co-director Hirra Khan Adeogun said: “It’s extraordinary to see the Chancellor preserve a Conservative policy which has endured for 14 years. Fuel duty will now be frozen for 15 years, while the cost of public transport has gone up and up each and every year.

“This is completely the wrong way around, and we need to move to a system which makes the greenest ways of getting around the cheapest and most convenient.”

Scottish Greens finance spokesperson Ross Greer also criticised the decision to “pour £3bn into keeping a climate-busting fuel duty freeze”.

Andy Bagnall, chief executive of industry group Rail Partners said: “While today’s road fuel duty freeze will be welcome news for motorists, holding it flat since 2010 has made it more difficult for rail freight to compete with road haulage.”

The Chancellor also revealed a 50 per cent increase in air passenger duty (APD) for private jets from 2026 - the equivalent of an extra £450 per passenger.

Announcing it, she made a dig at the Opposition leader Rishi Sunak, saying this is what someone would pay if they took a private jet from California.

Ms Reeves said APD would also rise on other flights in 2026. The rate for short-haul flights abroad will increase by £2 to £15.

Ross Greer, from the Scottish Greens, welcomed the private jets’ APD increase as one of the few “important steps in the right direction” in the Budget.

He said: “Whilst it doesn’t go as far as we would like, it is progress on one of the most incredibly polluting forms of travel."

But the MSP added: “What was missing was any confirmation from the Chancellor that she will take the necessary steps to finish the ten-year process of devolving APD and allowing Scotland to make these decisions for ourselves.”

Airports UK chief executive Karen Dee expressed “disappointment” at the APD increase, “especially at a time when airports are investing in new security technologies, sustainable flight and airspace modernisation”.

The Chancellor also announced up to £5m for feasibility work next year into upgrading the busy A75 freight route between the M6 at Gretna and Stranraer, near the Cairnryan ports for Northern Ireland ferries.

The road is the responsibility of the Scottish Government, but improvements were recommended by the Union Connectivity Review, commissioned by a previous Conservative government under former prime minister Boris Johnson.

Most rail fares by English-based train firms, including cross-Border operators, will increase by a maximum of 4.6 per cent from March, which the Treasury said would be the lowest rise for three years. The Scottish Government will announce ScotRail fare changes separately.