Budget 2024: What lies down the road?

Drivers will welcome the continued freeze in fuel duty announced in the Budget, but the way motoring is taxed needs to be addresses, says the RAC Foundation’s Steve Gooding

Tens of millions of drivers will be breathing sighs of relief. Transport – and for most of us, most of the time, that means the car – is already the second biggest area of average household expenditure.

The news will also be welcomed by big and small firms who own and operate the majority of the UK’s 4.8 million vans and 538,000 HGVs. Had fuel duty increased then their costs would have risen and some or all of that would have been passed onto customers. Higher fuel prices push up the cost of living for us all, whether we drive or not.

The Budget document says: “The government will freeze fuel duty rates for 2025-26, a tax cut worth £3 billion over 2025-26 which represents a £59 saving for the average car driver. The temporary 5p cut in fuel duty rates will be extended by 12 months and will expire on 22 March 2026. The planned inflation increase for 2025-26 will also not take place.”

We shouldn’t feel too sorry for the chancellor. She still gets well over half of everything paid at the pumps in a combination of fuel duty and VAT.

The unanswered question is what happens to motoring tax in the future. Long term, the take up of electric vehicles will erode Treasury income from fuel duty. What anyone in the market for a new car, especially one powered by batteries, wants to know is what the cost of running it will be in the years ahead.

The chancellor also announced an additional £500m to fix potholes next year: “Providing a nearly 50% increase, on 2024-25, in funding for local roads maintenance. This will go further than the government’s commitment to fix an additional one million potholes across England each year, investing almost £1.6 billion to maintain and renew the nation’s roads, an increase of £500m on 2024-25.”

Any money allocated to improve the shocking state of many of our local roads is welcome, but for all the talk of hundreds of millions of pounds, the country’s tens of millions of drivers will only be happy when they see an improvement on the highways they use everyday, those outside their houses.

The long-term solution is a long-term funding settlement for councils so they can finally get on top of what has been a perennial problem.

The Budget also contained details of tax differentials to support sales of electric vehicles: “To help drive the transition to electric vehicles (EVs) the government is strengthening incentives to purchase EVs by widening the differentials in Vehicle Excise Duty First Year Rates between EVs and hybrids or internal combustion engine cars. The government is also maintaining EV incentives in the Company Car Tax regime and extending 100% First Year Allowances for zero-emission cars and EV chargepoints for a further year.

“Specifically, the government will change the VED First Year Rates for new cars registered on or after 1 April 2025 to strengthen incentives to purchase zero-emission and electric cars, by widening the differentials between zero emission, hybrid and internal combustion engine (ICE) cars.

• Zero-emission cars will pay the lowest first year rate at £10 until 2029-30.
• Rates for cars emitting 1-50g/km of CO2, including hybrid vehicles, will increase to £110 for 2025-26.
• Rates for cars emitting 51-75g/km of CO2, including hybrid vehicles, will increase to £130 for 2025-26.
• All other rates for cars emitting 76g/km of CO2 and above will double from their current level for 2025-26.”

The Treasury’s costings document suggests the move will raise an extra £1.695 billlion for the Exchequer by the end of the decade. This is less of a nudge and more of a shove to change buyer behaviour in the showroom, but will it incentivise buyers to go battery-electric or simply mean they keep on driving their older, more polluting car for a bit longer?

However it happens, the faster battery-powered vehicles hit the road the faster they will find their way into the used market and so into the financial reach of many more people.

Elsewhere in the Budget the government announced that: “Roads investment in 2025-26 will be funded through an interim roads settlement, and the third Road Investment Strategy will be set out in the next phase of the Spending Review.”

It said that it would not be proceeding with a number of “unfunded and unaffordable” schemes on the strategic road network that did not show clear value for money:

• A5036 PrincessWay
• A358 Taunton to Southfields
• M27 J8 Southampton
• the A47 Great Yarmouth Vauxhall Roundabout
• A1 Morpeth to Ellingham

Steve Gooding is director of the RAC Foundation is a transport policy and research organisation which explores the economic, mobility, safety and environmental issues relating to roads and their users