The UK Chancellor Rachel Reeves has declared a new pay‑per‑mile tax for electric vehicles and plug-in hybrid vehicles in the budget.
Starting in April 2028, drivers of electric cars will be charged 3p per mile, while plug-in hybrid owners will pay 1.5p per mile. These rates will rise annually in line with inflation.
According to the Office for Budget Responsibility (OBR), this levy is roughly half the fuel duty currently paid by petrol vehicle users.
Additionally, the chancellor confirmed that the temporary 5p reduction in fuel duty will remain in place until September next year, after which the duty will increase each year in line with the Retail Price Index (RPI).
Drivers will be charged according to the number of miles they travel. Mileage will typically be recorded annually, either during the MOT for existing vehicles or, for new cars, around the first and second registration anniversaries, according to the Treasury.
Payments will be collected through the existing Vehicle Excise Duty system, managed by the DVLA.
An electric car covering 8,500 miles in the 2028–29 financial year would face a charge of around £255, roughly half the per‑mile fuel duty borne by petrol and diesel drivers.
Mileage will be measured using the vehicle’s odometer, which the government notes can be manipulated, or ‘clocked.’
The OBR projects that the new per-mile tax will generate £1.1 billion in revenue in 2028–29, increasing to £1.9 billion by 2030–31.
The levy will apply to all EVs registered in the UK, no matter where they are driven, while vehicles registered overseas but used in the UK will be exempt.
The OBR also noted that the charge could dampen demand for electric cars by raising their overall cost of ownership. To comply with government mandates, manufacturers may need to respond by lowering EV prices or reducing sales of non-EV vehicles.
Overall, the tax is expected to reduce electric car sales by around 440,000, although other government measures could offset roughly 320,000 of these lost sales.
Ford and the Society of Motor Manufacturers and Traders (SMMT) criticized the new levy, calling it “the wrong measure at the wrong time.”
Ford argued that the budget sends ‘a confusing message’ about the government’s push for drivers to adopt electric vehicles.
While the SMMT welcomed the government’s £1.3bn investment to support EV uptake, it cautioned that the per‑mile tax could weaken consumer demand.
Meanwhile, under the Vehicle Excise Duty, which started applying to EVs this year, the annual tax for buyers of luxury electric cars will increase in April 2026 from £425 to £440. The new rate will apply to vehicles costing over £50,000, up from the previous threshold of £40,000.
GENERAL | GWM to Establish Manufacturing Facility in Europe to Expand Footprint
