UK Budget 2025: Taxing times

Chris Rowland • November 18, 2025
As the UK edges closer to the 2025 Budget, the fiscal landscape is dominated by a looming £25 billion deficit. With Fuel Duty forecast to decline in relative and absolute importance over the next 10-15 years, could road pricing for road freight transport be a potential new source of tax revenue for the Treasury?

The decline of Fuel Duty

Rachel Reeves is receiving lots of advice in the run up to the Budget on 26th November on how to reduce the UK’s ‘fiscal black hole’ of perhaps £25 billion, following retreats on proposed spending cuts over the summer and against a background of sluggish economic growth and poor productivity. The question is where will the tax funds come from?

An increase in Fuel Duty should in theory be on the cards as it’s been frozen by successive governments at 57.95p per litre since 2011-12 and was subject to a 5p cut after Russia’s invasion of Ukraine; it remains government policy to both reverse the 5p reduction and introduce an index-based Fuel Duty escalator which could, according to our estimates, raise an additional £10bn per annum.  However, a Government which is focused on “delivering for working people, by prioritising renewal and growth through investment and reform” is unlikely to add to the on-going cost of living crisis by increasing a tax which already costs the average household £850 a year. 

In any event, the gradual decline in the relative value of Fuel Duty as a source of tax income is merely acknowledging that, in the longer term, it’s doomed. 

As consumers increasingly purchase electric cars, and road hauliers gradually decarbonise their fleets by purchasing battery electric HGVs, tax revenues from Fuel Duty will inevitably decline in any case.  

How will the Treasury fill that long-term fiscal gap?

Road pricing: a logical but politically fraught solution

The UK freight transport industry thinks some form of road pricing – where hauliers would be charged for their use of the highways network instead of a tax on the fuel it purchases - is inevitable.


Logistics UK published a document called Unleashing the power of logistics to drive growth across the whole economy in January 2024.  At the end of the chapter on the theme of a Fair transition to a green economy, it included a request for, “The government to work with our sector on plans for road pricing”.


When asked whether its members regard road pricing as inevitable by the Chair of the House of Commons Transport Committee in October 2021, a representative of the Road Haulage Association replied simply, “Yes, I think so”.


Without a change in approach, policies to deliver net zero emissions will inevitably result in a calamitous reduction in tax revenue for the Government from motoring taxation by 2040, given that Fuel Duty provided 77% of motoring tax revenue in 2022-23 and, on its own, is the equivalent of 1% of the UK’s Gross Domestic Product. That pays for a lot of new hospitals – or new transport infrastructure.


When it comes to introducing road pricing, however, there is a distinct lack of political courage.


In early 2007, during the second Blair administration, an online petition against road pricing appeared on the 10 Downing Street website after the Department for Transport (DfT) dared to suggest pilots should be carried out on the concept. It rapidly attracted 1.8 million digital signatures and Number 10 told the DfT to drop the pilots.


In February 2022 the Transport Select Committee recommended the Treasury and DfT should, as a matter of urgency, set up an arm’s length body to recommend a new road charging mechanism. The Chancellor of the Exchequer at the time replied, “The Government is focused on delivering its core priorities, as set out in the 2019 manifesto. As such, the government does not currently have plans to consider road pricing.”


As Professor Stephen Glaister pointed out in 2014, “It has become a standing joke that even if any UK politician is unable to deny the logic of the case for some form of road pricing, they are never willing to implement it within the next ten years—by which time they will be long gone.”



Freight first: a pragmatic path forward

Despite politicians’ understandable lack of courage on the subject after the debacle in 2007, the option remains to implement road pricing – if only for road freight movements. The road haulage industry itself regards road pricing as inevitable. And, we should always remember that freight doesn’t vote.


Picking on freight for the roll-out of road pricing has been implemented successfully elsewhere. In 2005 the Maut distance-based toll system was introduced for HGVs in Germany and the scope of the charge has gradually been increased from only larger HGVs to include all trucks, and also varies the  charges according to their emissions. The German government originally intended to extend the system to include vehicles driven by the voting public, but finally abandoned that idea in 2019.


Much would depend on the design of the system of road pricing on road freight and it’d be essential to avoid any unintended consequences. A UK freight-focused road pricing model could serve as a blueprint, balancing fiscal sustainability with environmental goals. But careful design and modelling will be essential to avoid unintended consequences. Modelling the impact of road pricing will be the subject of my next article.  


What comes next?

The transition to road pricing is not just a fiscal necessity—it’s a strategic imperative. As we move toward net zero, the UK must rethink how it funds its roads and infrastructure. Freight may be the first step, but the journey will eventually involve all road users.


For more information on how public policy can impact the freight and logistics sector, contact us at web.enquiries@mdst.co.uk.