From fuel duty to fare caps: How the Autumn Budget shapes the road ahead

Following the Budget announcement on 26 November 2025 by UK Chancellor Rachel Reeves, Partner and Head of Transport at Freeths Michael Bray explores some of the pros and cons for bus and coach operators, and shares some thoughts on what may be to come.

The 5p per litre freeze on UK fuel duty will continue to benefit bus and coach operators in extending discounted bottom line fuel costs. This continued freeze also applies to domestic car users and is therefore not going to have any impact on incentivising drivers to leave the car at home and opt for greener, congestion-reducing, public transport alternatives.

The freeze is due to be reversed from late 2026, with full indexation from 2027. In order to continue to provide further support for the bus and coach sectors, the industry is calling for an exemption from fuel duty, which would save the sector around £142 million per year. However, it is unlikely that the benefit of any such exemptions would be passed on to customers, but it would provide some welcome relief to operators already operating on very tight profit margins. There is no mention in the Budget of any imminent changes to the Bus Service Operators Grant (BSOG), which refunds a significant proportion of the fuel duty paid in running local bus services, with BSOG in any event currently under review by DfT.

What we need are support measures that can directly benefit customers’ pockets to encourage public transport use as a more cost competitive, if not cost-effective, alternative to the car.

One of the largest impacts on bus and coach operators could come from increases to the National Living Wage and employment costs. The National Living Wage will rise from £12.21 per hour to £12.71 per hour from April 2026. This, coupled with the recent employer changes to National Insurance contributions, could put more pressure on employment costs for operators, with labour costs already accounting for more than half of operating costs in the sector. The labour market deserves to be paid fairly and there is no justification for applying different rules across different sectors, so we should not make a case for any distinguishing factors. However, I anticipate the majority of the labour force in the UK bus and coach sector will be paid above the National Living Wage, so the real-world impact of this will be limited.

Reeves announced that the £3 cap on bus fares currently covering most journeys in England has been extended until at least March 2027 (previously due to expire at the end of 2025). Whilst this could be viewed as suppressing revenue for operators, cost-certainty and capped local fares will inevitably encourage more bus journeys, particularly at peak commuter times, avoiding congestion, with a return journey (£6) likely to cost less than a day’s parking in most UK cities.

The continued support for major road schemes, including the Lower Thames Crossing, is also welcomed news for the long-term benefit of operators who rely on capacity and efficiency of our road networks to trade.

There has also been a fair amount of commentary about the impact of the new Electric Vehicle Road User Charge on bus and coach journeys. Whilst the new charge (3p per mile for electric vehicles and 1.5p per mile for plug-in electric hybrids) being introduced from April 2028 will not apply to buses and coaches (at least initially), some view the additional charge as positive encouragement to opt for public transport and leave the car at home.

I am not persuaded that an additional 3p per mile to be levied on electric vehicles is going to have any material impact on electric car usage. The average list price of an electric car in the UK is around £46,000, and with other running costs including recent hikes in car insurance premiums and the soaring cost of electricity, the UK demographic that have become early adopters of electric vehicles are not going to be put off using them over a mere £213 per year estimated additional charge (based on the UK average annual mileage of around 7,100 miles). The £2 billion support package helping with the switch to EVs will also continue.

The new Electric Vehicle Road User Charge could be extended to electric buses and coaches in the future, although currently exempt from the new regime. Buses and coaches already benefit from large discounts on vehicle excise duty, so it is unlikely we will see an extension of the new charge to electric buses and coaches in my view. And if we do, it will be some years in the future and it will be levied at a much lower pay-per-mile charge than for domestic vehicles. It also may not be universally applied given existing support for local services such as the BSOG.