Rachel Reeves unveils new car tax measures today as thousands face new rates on UK roads

The temporary Vehicle Excise Duty reduction came into effect on 1 July and will run until June 30, 2027. The scheme applies to most HGVs over 3,500kg that renew their tax during the 12 months.

It follows an announcement by the Chancellor in May as part of a wider support package to help businesses cope with rising fuel costs linked to the ongoing conflict in Iran.

Speaking in Parliament, Ms Reeves said the road tax holiday would provide significant savings for hauliers.

"For hauliers, the Government is granting a 12-month road tax holiday for HGVs, saving the typical heavy lorry up to £912," she told MPs.

It was first revealed by Prime Minister Keir Starmer and Exchequer Secretary to the Treasury Daniel Tomlinson on May 20 before being approved through the Taxation (Energy and Vehicles) Bill.

The Treasury said the tax cut recognised the important role the road haulage industry plays in keeping goods moving across the UK while helping businesses facing higher operating costs.

Eligible vehicles include those taxed as standard HGVs, trailer HGVs, special types, combined transport vehicles and island goods vehicles.

The legislation temporarily replaces normal Vehicle Excise Duty rates with a nominal £1 charge for qualifying commercial vehicles.

The DVLA has updated its systems to apply the reduced rates automatically when eligible vehicles are taxed.

Around 46,000 road freight businesses are expected to benefit from the measure, while companies in other sectors that operate qualifying HGVs will also be able to claim the reduced rate.

Officials explained that the measure is intended as short-term financial support rather than an incentive to change vehicle-purchasing decisions.

Richard Smith, MD of the Road Haulage Association, warned that while a one-off 12-month HGV VED "holiday" will offer some relief, overall the Government's action will have "limited impact with many haulage, coach and van operators already on the brink".

"In the longer term we urge her to decouple fuel duty from RPI, which is planned to start next April when prices will rise again," he added.

The scheme will be monitored by the DVLA, HMRC, and the Treasury throughout its 12-month duration.

Chancellor Rachel Reeves also confirmed a more than one-third reduction in red diesel duty until the end of 2026, benefiting sectors including agriculture and rail freight.

In addition, tax-free mileage rates for employees using their own vehicles for work have increased by 10p per mile, taking the main rate from 45p to 55p.

The increase applies retrospectively from April 2026 and is expected to benefit workers such as carers, engineers and tradespeople.