Drivers narrowly favour VAT cut at the Budget as preferred way to ease record pump prices

One-in-three drivers (34%) favour the Chancellor cutting VAT on fuel at this week’s Budget to ease the exceptionally high pump prices, slightly more than the 29% who would prefer to see fuel duty cut further, new RAC research shows.*

Petrol and diesel prices have spiralled upwards this year as a result of the US/Iran conflict pushing up oil prices, and disruption to global diesel supplies caused by Russia’s war in Ukraine. The average price of a litre of diesel exceeded £2 a litre for the first time ever at the start of this month and unleaded nudged £1.75 a litre, its highest in more than four years. As a result, 2026 is on course to be the second most expensive year on record for drivers to fill up – second only to 2022 – despite fuel duty having remained at a reduced rate of 52.95p a litre since the onset of the war in Ukraine.

RAC figures show an increasing proportion of drivers are cutting back on other spending because of the high cost of fuel: two-thirds (65%) of motorists say they’re doing so this month, compared to 61% who said the same in April. And among those who have no choice but to use their vehicles, 47% say they’re struggling to cope with the costs now, up from 39% in April.

Against this backdrop, drivers understandably want the Chancellor John Healey to act when he delivers his first Budget on Wednesday. While around one-in-10 (13%) would prefer fuel duty – which is set to rise by 5p by next March – was simply held at its reduced rate of 52.95p a litre, a further cut in fuel duty is more than twice as popular (favoured by 29% of drivers).

But marginally more drivers want the Chancellor to take a different approach and instead cut VAT on fuel, while leaving fuel duty at its current rate. Successive governments have relied on adjusting fuel duty to ease the impact of high fuel prices, but given VAT on domestic electricity was cut at the start of October, doing so with fuel prices is another lever the Chancellor could pull to ease the burden. 

The RAC has analysed how the different options drivers are calling for would affect the cost of filling up. Keeping fuel duty at its present rate of 52.95p a litre is one scenario, but of course this didn’t stop motorists facing rampant price rises through the summer and wouldn’t result in cheaper pump prices. Cutting fuel duty by a further 2p a litre to 50.95p would save drivers £1.30 a tank**, while a 5p cut (to 47.95p) would save them £3.30 a tank.

VAT works differently because the amount charged rises or falls with the price of the fuel. As diesel currently costs more than petrol, a VAT reduction would produce slightly larger savings for diesel drivers. Based on current average pump prices, reducing VAT by 2.5% to 17.5% would deliver around a £2 saving for every unleaded fill-up and £2.30 for a diesel one. Cutting the rate to 15% would save approximately £4 on petrol or £4.60 on diesel, while a VAT rate of 10% would reduce the cost by £7.90 and £9.10 a tank respectively.

Together, as things stand the joint taxes of fuel duty and VAT make up 47% of the total cost of a litre of unleaded and 43% of the cost of a litre of diesel.

RAC senior policy officer Rod Dennis said: “The status quo, which would see fuel duty increase by 5p by the Spring and leave drivers faced with even higher pump prices, feels unsustainable, so we very much hope it’s a question of ‘how’ they are supported in Wednesday’s Budget, and not ‘if’.

“It’s easy to forget that fuel duty is already lower than it was several years ago given it was cut by 5p in the early days of the Ukraine war. But this hasn’t stopped prices spiralling this year as a result of the ongoing conflicts in the Middle East.

"An end to hostilities and a lower oil price would deliver the greatest relief at the pumps, but this isn’t something that’s ultimately in the UK’s control. The extent to which drivers are taxed, however, most certainly is.

“Cutting fuel duty further should deliver some relief at the pumps, while reducing VAT is another option available to the Government and is narrowly preferred by drivers in our research. The two approaches work differently.

"A fuel duty reduction would take the same amount of tax off every litre of petrol and diesel, while a VAT cut would produce a larger saving on the more expensive fuel. With diesel currently costing more than petrol, diesel drivers would therefore see a slightly greater cash saving.

“Whatever is announced on Wednesday, it can’t come soon enough for the nation’s drivers who are enduring the second most expensive year for filling up on record.

"For so many, using the car is a necessity and not a choice and it’s important the Government recognises that.”

^{* 1,208 regular UK drivers surveyed for the RAC in October 2026. Responses were rim-weighted to be nationally representative of UK motorists in age, gender, socio-economic groups and all UK regions.} 

^{** Based on a 55-litre family-sized car}