Autumn Budget 2025: Confirmed EV Pay-Per-Mile Tax Details

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In a move that has sparked considerable debate, the Chancellor has announced plans for a new pay-per-mile tax on electric vehicles (EVs), set to roll out in 2028. Despite widespread criticism, this initiative aims to address the declining revenue from fuel duties as more drivers transition to electric vehicles. The proposed Electric Vehicle Excise Duty (eVED) will charge drivers 3p per mile for battery electric cars and 1.5p for plug-in hybrids, a decision that could significantly impact the future of electric mobility in the UK.

The introduction of this mileage-based charge was revealed in a leaked report from the Office for Budget Responsibility (OBR), outlining the government’s financial strategy as it grapples with the implications of an increasing number of EVs on the roads. This new tax will be implemented from April 2028 and is projected to generate £1.1 billion in its first year, rising to £1.9 billion in 2030/31. However, the OBR has cautioned that these estimates hinge on the rate of electric vehicle adoption over the coming years, casting uncertainty on the actual revenue the government can expect.

For context, the average driver of a battery electric car is estimated to cover around 8,500 miles annually, which would translate to an additional cost of roughly £255 by 2028. While this is about half of the current fuel duty tax per mile for petrol and diesel vehicles, there are concerns that the new tax could deter potential buyers from making the switch to electric vehicles altogether. According to OBR forecasts, the introduction of the eVED could result in 440,000 fewer electric car sales, although some of this decline may be offset by additional funding for the Electric Car Grant and an increase in the Expensive Car Supplement threshold for battery electric cars.

Simon Williams, head of policy at the RAC, expressed concern that this new taxation scheme could inadvertently slow down the transition to electric vehicles. He noted that while the government seems to be looking for ways to maintain revenue as fuel duty dwindles, careful consideration is required in implementing such a significant policy change. Williams emphasised the importance of transparency and clarity in the rollout of the eVED, particularly as it relates to the existing vehicle excise duty (VED) charges that all vehicles currently incur.

Further complicating matters, the AA has stressed the need for the new EV tax to be straightforward, equitable, and trusted by all road users. Edmund King, the AA president, highlighted the necessity of timing in introducing the pay-per-mile scheme, warning that premature implementation could hinder the shift towards electric vehicles. He called for protections for specific groups, such as carers and rural drivers who rely heavily on their vehicles, to ensure a fair distribution of the tax burden.

Echoing these sentiments, Tanya Sinclair, CEO of Electric Vehicles UK, called for a fundamental overhaul of the UK’s motoring tax system. She pointed out that while change is inevitable as more drivers transition to electric, it must be executed with careful planning and transparent communication. The introduction of a pay-per-mile scheme requires thorough consultation to ensure that it aligns with the government’s broader goals of promoting electric vehicle adoption.

Industry leaders have also raised concerns about the potential impact of the new tax on drivers who lack home charging options. Delvin Lane, CEO of InstaVolt, cautioned that imposing an EV tax at this early stage could deter potential switchers by introducing additional costs. He highlighted the disproportionate effects such a scheme may have on drivers who currently pay 20% VAT on public charging versus the 5% VAT applicable to domestic electricity, as well as on rural commuters who depend on their vehicles.

Julian Mensah, CEO of Voltric, warned that the pay-per-mile tax could significantly dampen the electric car market, particularly for those who rely on salary sacrifice schemes to afford electric vehicles. He suggested that the government has other avenues to explore for generating revenue from motorists that would be less detrimental to the growing electric vehicle sector.

Jon Lawes, managing director at Novuna Vehicle Solutions, echoed these concerns, stating that the introduction of new costs for EV drivers might undermine confidence in the electric vehicle market, especially as the government injects additional funds into the Electric Car Grant scheme. He pointed out that while the increase in the threshold for the Expensive Car Supplement to £50,000 is a positive step, the confirmation of the pay-per-mile charge essentially complicates the financial landscape for EV owners.

As businesses increasingly adopt electric vehicles, concerns are mounting regarding the financial implications of this new tax. Russell Olive, UK director at charging management software company Vaylens, warned that for companies managing large fleets of electric vehicles, the additional costs could be unsustainable. He stressed the importance of smarter policies and better infrastructure to support electric vehicle adoption rather than imposing new financial burdens on early adopters.

Despite these challenges, the Energy and Climate Intelligence Unit (ECIU) remains optimistic about the economic rationale for transitioning to electric driving. Colin Walker, head of transport at ECIU, noted that even with the proposed 3p per mile charge, electric vehicles would still offer substantial savings over petrol cars, potentially delivering annual ownership savings of over £1,000.

As discussions surrounding the pay-per-mile tax continue, it is clear that the government faces a delicate balancing act. While the need for sustainable road taxation is evident, the implementation of such measures must be carefully crafted to encourage, rather than hinder, the shift towards electric vehicles. As we move closer to the proposed rollout date, it is imperative that the government engages with industry stakeholders and the public to ensure that the transition to a net-zero future remains on track.

In conclusion, the introduction of a pay-per-mile tax on electric vehicles presents both challenges and opportunities. As the government navigates this complex landscape, it is essential to prioritise fairness, transparency, and the long-term goals of reducing carbon emissions while supporting the transition to sustainable transport. The future of electric mobility in the UK depends on smart, equitable policies that empower drivers to embrace electric vehicles without fear of undue financial burden.