New mileage allowances have marked a major step forward for millions of drivers, with employees set to benefit from the first rise in business mileage rates in 15 years.Chancellor Rachel Reeves confirmed the tax-free mileage allowance will increase by 10p to 55p per mile for the first 10,000 business miles driven each year.The increase will be backdated to April 2026 and applies to workers using their own cars or vans for business journeys. The mileage allowance had previously been frozen at 45p per mile since 2011 despite soaring fuel prices and higher motoring costs.Under the HMRC-approved scheme, employers can pay workers mileage expenses tax-free when they use their own vehicles for work-related travel. The allowance does not apply to normal commuting to and from work. The money-saving expert Martin Lewis said the change would make a real difference for workers who rely on their vehicles every day. Speaking on BBC Radio 5 Live, Mr Lewis described the increase as one of the most important announcements in the Government’s latest cost-of-living package. He said: “The big one that I think is going to be undercovered but is actually really important is the increase in the mileage allowance for people who drive as part of their work.”The money savings expert has welcomed the increase in fuel mileage allowances by the Government | PA/GETTYMr Lewis explained many workers, including carers travelling between homes, use their own vehicles throughout the day and face significant running costs. He added: “If you drive your own car as part of your work, this mileage allowance is the amount that your employer can give you to cover your costs, and you don’t pay tax and National Insurance on it. So moving that from 45p to 55p is important.” The financial expert also highlighted workers can still claim support even if employers do not pay the full allowance rate. “And if you’re not given that level, you can claim the tax back on the difference between what you’re given and that amount,” he added. The Chancellor announced new mileage rates this week as part of a new summer savings package | PARLIAMENT UKMr Lewis then gave an example of how workers could benefit financially, saying: “If you’re given 30p/mile, you can reclaim tax paid on your wages for the 25p/mile difference.” Under the updated rules, workers whose employers pay less than the approved HMRC rate can claim tax relief on the shortfall through HMRC or through self-assessment tax returns. The 55p rate will apply only to the first 10,000 business miles travelled during a tax year. After that threshold, the lower 25p per mile rate will continue to apply. The increase covers cars and vans, while rates for motorcycles and bicycles will remain unchanged at 24p and 20p per mile, respectively.Approved Mileage Allowance Payments are calculated every year | PAMs Reeves announced the changes as part of Labour’s wider “Great British Summer Savings” package aimed at helping households manage living costs. Speaking in the House of Commons, the Chancellor said: “I can today announce a 10p per mile increase in tax-free mileage rates backdated to April 2026, benefiting those who drive to work.” She added the Government was continuing support measures already in place, including freezing fuel duty. The Treasury estimates the mileage allowance increase could save around £120 annually for someone driving 6,000 business miles each year using their own vehicle.Alongside the mileage changes, Ms Reeves also announced temporary VAT cuts on family attractions during the summer holidays, free bus travel for children in England this August and continued freezes on fuel duty and rail fares. The Government said mileage rates would be reviewed again at the Autumn Budget.