Full Breakdown
UK Chancellor Rachel Reeves Raises Tax-Free Mileage Allowance to 55p per Mile
5/21/2026, 8:54:58 PM
Background, Key Figures & Context
The mileage allowance for employees using personal cars has been fixed at 45p per mile for the first 10,000 business miles since 2011. Rising fuel costs spurred unions Unison and the ATT to press for change. Chancellor Rachel Reeves announced the revision, with Treasury minister Dan Tomlinson and MP Jim McMahon present.
Mileage Rate Change – Data & Impact
The tax-free rate for cars and vans rises to 55p per mile for the first 10,000 miles, with the post-threshold rate unchanged at 25p. Treasury estimates a 6,000-mile driver will save about £120 a year. The true operating cost is roughly 67p per mile; a social-worker driving 400 miles a month previously spent over £1,000 out-of-pocket. The package adds a 12-month HGV road-tax holiday (up to £912) and a red-diesel duty cut of more than a third.
Official Statements & Government Rationale
Reeves told the Commons the uplift ‘recognises how motoring costs have evolved’ and will be back-dated to April 2026 for care workers, plumbers and frontline staff. Treasury minister Dan Tomlinson called the review ‘well overdue’. The Chancellor linked the mileage change to a package that includes a VAT cut on family attractions, a fuel-duty freeze and energy-sector support.
Criticism & Opposition
Unions welcome the increase but stress that 55p still trails the estimated 67p per-mile cost. Jon Stride warned employees remain ‘effectively out of pocket’. Treasury officials noted that employers paying higher rates could face extra tax and National Insurance charges. Critics also highlight the April 2026 back-date delays immediate relief.
Verbatim Quotes
- “They haven’t been lifted for 15 years. It's been a big union ask.” — Dan Bloom, Politico
- “The 45p a mile rate, set 15 years ago, is nowhere near the true cost of running a vehicle today, which was recently assessed at 67p a mile, and that was before fuel costs rocketed in the last week.” — Jim McMahon, MP
- “ Jon Stride, chair of the ATT’s technical steering group, said: "These rates are now so out of date that employees using their own vehicle for work are effectively out of pocket.” — Jon Stride, ATT technical steering group chair
- “People who need their own cars for work have been left thousands of pounds out of pocket for far too many years.” — Andrea Egan, Unison general secretary
Conflicting Reports & Gaps
All sources agree the new rate is 55p per mile and will be back-dated to April 2026. However, no source specifies the exact payroll implementation date, and details on employer tax and NI liabilities for paying above the statutory rate remain vague.
What’s Next
The mileage uplift is part of the “Great British Summer Savings” programme, which also includes a 5 % VAT rate on family attractions, free bus travel for children during August holidays, and a fuel-duty freeze through 2027. The Treasury signalled further tax-policy reviews in upcoming fiscal events.
