UK to introduce 3p-per-mile tax on electric vehicles from 2028 – The Herald
A pay-per-mile taxation for electric vehicles will be introduced in three years’ time, the UK Government Autumn Budget has announced.
The Chancellor also signalled petrol and diesel duty will rise in 2026 for first time in 16 years.
A leaked Office for Budget Responsibility (OBR) document confirmed the new mileage tax on electric vehicles (EVs) ahead of the budget being announced this afternoon.
The OBR forecast report states: “Other tax changes raise £11 billion by 2029-30.
“These include a new mileage-based charge on electric and plug-in hybrid cars from April 2028 at around half the fuel duty rate paid by drivers of petrol cars (raising £1.4bn).”
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EV drivers will be charged 3p for every mile they cover annually from 2028 in an effort to plug an imminent fiscal black hole.
This comes in addition to the current vehicle excise duty (VED) charges paid by all vehicles, which will be introduced in April 2028.
In 2028-29, the charge will equal £0.03 per mile for battery electric cars and £0.015 per mile for plug-in hybrid cars, with the rate per mile increasing annually with CPI.
The average driver of a battery electric car in 2028-29 driving 8,500 miles is expected to be charged £255 in this year.
This is roughly equivalent to half the rate of fuel duty tax paid per mile by drivers of petrol and diesel vehicles.
The new charge is expected to raise £1.1bn in 2028-29, rising to £1.9bn in 2030- 31.
The Government’s zero-emission vehicle (ZEV) mandate requires EVs to make up an increasing minimum proportion of total manufacturer sales over the next five years, reaching 80 per cent in 2030.
The OBR’s fiscal outlook states: “This new charge is likely to reduce demand for electric cars as it increases their lifetime cost. To meet the mandate, manufacturers would therefore need to respond through lowering prices or reducing sales of non-EV vehicles.
“Overall, as a result of this measure, we estimate there will be around 440,000 fewer electric car sales across the forecast period relative to the pre-measures forecast, with 130,000 of this offset by the expected increase in sales due to other Budget measures.
The OBR said the fuel duty freeze, introduced 16 years ago, would be “reversed through a staggered approach”. It was cut by 5p by the previous Conservative government in 2022.
The announcements follow a long-running consultation by the UK Government on how to replace dwindling fuel-duty revenues as motorists transition away from petrol and diesel cars.
Announcing the measures in the Commons, Rachel Reeves said: “Because all cars contribute to wear and tear on our roads, I will ensure that drivers are taxed according to how much they drive and not just the type of car they own.”
However, Scotland’s Finance Secretary Shona Robison criticised it as “the wrong decision for motorists, the climate and for Scotland given its disproportionate impact on rural drivers”.
She said: “Instead of the piecemeal approach we see today, which simply aims to balance the UK Budget on the back of motorists, we need a sensible four-nations conversation about motor taxation.
“Freezing fuel duty for a few more months and then increasing it, alongside arbitrary taxation of EVs, doesn’t give Scotland a sensible, coherent policy designed to help hard-pressed motorists nor does it help tackle climate change.”
The new tax has been named electric vehicle excise duty (eVED) and is to be paid each year alongside the existing vehicle excise duty VED).
The rate will increase annually in line with the CPI measure of inflation.
The Treasury said in April 2028, an average EV driver will pay about £240 per year.
It added that the tax paid by EV drivers will be “around half the fuel duty rate paid by the average petrol/diesel driver”.
A Treasury consultation document revealed that for eVED, drivers of electric cars will be required to estimate their mileage for the year and either pay upfront or spread their payment across the year.
This will happen when they pay VED.
Drivers will submit their actual mileage at the end of the year, and either make an extra payment or receive a credit for future use as required.
Motorists will have their mileage checked annually.
This will be during their MOT for most cars.
But as new cars do not have an MOT until they are three years old, they will be checked at about the first and second year anniversary of their registration.
The document stated that the Government has ruled out charging tax based on when or where people drive to “protect motorists’ privacy”.
This means mileage driven overseas by UK-registered cars will fall into the scope of eVED.
Steve Gooding, director of motoring research charity the RAC Foundation, said it was “inevitable” that the Treasury would “backfill its coffers” as it watches income from fuel duty “ebbing away”.
The OBR warned that the new tax will reduce sales of electric cars by about 440,000 as it is “likely to reduce demand … as it increases their lifetime cost”.
Ginny Buckley, the chief executive of EV advice website Electrifying.com, described the Government’s approach to the EV transition as “muddled and confusing”, by offering purchase grants but “piling new taxes” on those who have already switched from petrol or diesel models.
Ian Plummer, chief commercial of online vehicle marketplace Autotrader, accused the Chancellor of “driving with the handbrake on” when it comes to EVs.
He claimed the per-mile charge “sends completely the wrong signal”.
Tanya Sinclair, chief executive of lobby group Electric Vehicles UK, said the Budget sends “mixed signals” which will “impact market confidence”.
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