The Chancellor recently confirmed a 10p per mile rise in tax-free mileage rates – the first increase in 15 years – bringing the rate up to 55p per mile and backdated to April 2026.
The move is part of a broader package of cost-of-living measures and is expected to benefit up to two million employees and one million self-employed people who use their vehicles for work.
Rachel Reeves, Chancellor of the Exchequer, said: “The war in Iran isn’t our war, but one we will need to respond to, and my priority is keeping prices down for households and businesses.
“That’s why we’re freezing fuel duty, increasing the mileage rate for the first time in 15 years and slashed VAT temporarily this Summer to help reduce the cost of days out.”
The uprating is expected to save around £120 a year for someone driving 6,000 business miles.
In addition to the mileage rate increase, the Chancellor has also extended the freeze on fuel duty until the end of the year.
This marks the third fuel duty freeze and has saved motorists an estimated £120 since last year.
Further support is targeted at sectors particularly vulnerable to rising fuel prices.
Relief measures have been put in place for farmers and hauliers, including a cut in the rate for red diesel and rebated biodiesel by over a third, reaching its lowest level in over two decades.
Hauliers who rely heavily on fuel for their operations have also been granted a one-year road tax holiday starting from July 1.
Heidi Alexander, Transport Secretary, said: “We are a government firmly on the side of drivers, and that means acting when hardworking people are being left out of pocket.
“The people who use their own vehicle for work are the backbone of our country – the carers, the tradespeople and the public sector workers who keep services running.
“For too long, they have been expected to shoulder rising costs with support that simply has not kept up.”
The mileage rate increase has been welcomed by unions, which have long argued that frozen rates have left workers out of pocket.
Andrea Egan, General Secretary, Unison, said: “This simple measure will provide immediate help for countless frontline workers in public services. Particularly at a time when living costs are going through the roof once again.
“People who need their own cars for work have been left thousands of pounds out of pocket for far too many years.
“UNISON has campaigned hard for this long overdue change. It’s good to know the chancellor has listened to the concerns of staff penalised by frozen rates.
“There’s still more to do to ensure no one is losing out and the union will continue to campaign for more over the coming months.”
The mileage rate change is part of the government’s wider ‘Great British Summer Savings’ initiative.
This includes free bus travel for five to 15-year-olds in England, reduced VAT on children’s meals in restaurants, and VAT cuts on entry to theatres, theme parks, and other attractions.
Other ongoing measures include a £150 reduction in average household energy bills, a freeze on prescription charges and rail fares, and an increase in the national minimum and living wages.
The Chancellor is also consulting on a second round of tariff suspensions on 125 essential items, including fresh fruit, vegetables, oils, and baked goods.
The goal is to further ease cost pressures on consumers.
The consultation also explores whether suspension of tariffs on certain fertilisers could support farmers affected by rising input costs linked to the conflict in the Middle East.
