LONDON – Britain’s government will introduce a new “pay-per-mile” tax for electric vehicles (EVs) starting in 2028, Chancellor Rachel Reeves announced in her Autumn Budget, a move designed to offset falling fuel duty revenues but which critics warn could dampen consumer demand for zero-emission cars.
The new levy, set at 3 pence per mile for fully electric vehicles and 1.5 pence for plug-in hybrids, aims to bring the taxation of EVs closer in line with petrol and diesel cars. The Treasury stated the 3p rate is roughly half the equivalent fuel duty cost per mile for a conventional car.
The policy, which will take effect in April 2028 and see rates rise annually with inflation, marks a significant shift for drivers who have until now been exempt from vehicle excise duty based on emissions.
“The decisions have further complicated the outlook for motorists and manufacturers that are looking for clarity on their commitments to the EV sector,” said a spokesperson for the Society of Motor Manufacturers and Traders (SMMT).
The government’s independent fiscal watchdog, the Office for Budget Responsibility (OBR), forecast the measure would raise £1.1 billion in the 2028-29 tax year, rising to £1.9 billion by 2030-31. However, it also issued a warning, stating the tax is “likely to reduce demand for electric cars as it increases their lifetime cost,” and projecting 440,000 fewer EV sales by 2030/31.
To mitigate the impact, Chancellor Reeves concurrently announced an extension of the UK’s electric vehicle purchase grant, worth up to £7,500, until at least 2030. The Treasury also confirmed EVs would remain eligible for purchase through salary sacrifice schemes.
The government is consulting on the implementation, anticipating that mileage will be self-reported, potentially during annual MOT tests, with “no requirement to report where and when miles are driven or install trackers in cars.”
Industry reaction was mixed. Mike Hawes of the SMMT welcomed the grant extension but said the new levy “is at odds” with government messaging on backing the switch to electric transport. “This confused policy approach will shake consumer confidence,” he added.
Some analysts viewed the tax as an inevitability. “Every EV sold is one fewer that’s visiting petrol stations and pumping money into Treasury coffers,” said an auto industry analyst.
Consumer groups raised concerns about the practicalities. “Early suggestions that drivers might need to declare mileage ahead of time raise genuine concerns; if motorists end up being charged for miles clocked outside the UK, that would clearly be unfair,” said a motoring association representative.
The government now faces the challenge of balancing its fiscal needs with its environmental commitments, as it navigates the transition away from fossil fuel-dependent motoring.