Autumn Budget 2025: what does it mean for motorists?

Electric vehicle (EV) and plug-in hybrid (PHEV) owners will be hit with a new tax called eVED to make up for anticipated losses in fuel duty revenue as more people go electric and buy less petrol and diesel. 

The new tax will be a fee of 3p per mile on all mileage covered by those driving pure electric vehicles, and 1.5p per mile for those driving PHEVs. For an EV driver covering 10,000 miles a year, it will add £300 to their annual motoring costs, and £150 a year for PHEV drivers.  

There is no information on how the pay–per-mile tax is expected to be enforced, but it is believed to be arriving in 2028 after a period of consultation. 

What Car? research into the proposed new tax has revealed that 52% of new car buyers would be deterred from buying an EV if they had to pay 3p per mile. Perhaps most worryingly of all, more than a third (38%) of respondents who were planning to buy an electric car said they would reconsider if a pay-per-mile tax on EVs was introduced. 

What Car? consumer editor, Claire Evans, said: “Introducing an additional tax on EVs won’t only be unpopular, it will clearly make many drivers who are intending to buy an EV rethink their plans. Coming hot on the heels of the Government’s Electric Car Grant, which stimulated demand for EVs, it sends a terrible mixed message.”

EV owners now also have to pay £195 a year in road tax (VED), after charges for them were introduced in April 2025.  

Measures to encourage EV take-up

There is some good news for EV drivers in that the Government has committed an extra £1.3 billion to extend the Electric Car Grant until 31 March 2030.

However, only four vehicles have so far qualified for the full £3750 offered by this grant, which requires them to adhere to strict conditions based on how green the vehicle is in terms of the carbon emissions created in producing it. The four qualifying vehicles are the Citroen e-C5 Aircross Long Range, Ford Puma Gen-E SUV, Ford E-Tourneo Courier van-based MPV and Nissan Leaf. A small number of other models, including the Renault 5, qualify for a smaller discount of £1500. 

Another positive move is the raising of the expensive car VED supplement of £474 a year (for cars aged two to six years old) that currently applies to all new cars costing £40,000 or more. For EVs, this threshold will rise to £50,000. This change will apply from April 2026. However, combined with the annual VED rate of £195 and a pay-per-mile fee, high-mileage EV drivers may still end up worse off.  

Other measures to boost EV ownership include an additional £200 million that will be put towards improving the public charging infrastructure and helping to facilitate home/on-road charging for people without driveways. 

There will also be an extra £1.5 billion for the DRIVE35 fund, which contributes to research and investment in vehicle electrification. 

Chancellor Rachel Reeves is also expected to announce a consultation into the amount of VAT levied on public EV charging. At present, it is set at 20%, the same as other goods, but that is 15% higher than the 5% rate charged on home electricity consumption. 

New river crossing 

The Government has given the go-ahead for work to start on the Lower Thames Crossing, which will link Kent with Tilbury in Essex. Its aim is to provide a fourth crossing point to the east of the capital that will help reduce congestion on the Dartford Crossing, the Blackwall Tunnel and the recently opened Silvertown Tunnel. 

Fuel duty

It was widely speculated that the Chancellor would remove the 5p per litre discount on fuel duty that was introduced temporarily to counteract rising fuel prices caused by the war in Ukraine. It will be removed, but not until September 2026. This is good in the short-term because it would have added around £500 a year to the cost of driving for someone driving a petrol car with a 50-litre tank, covering 8000 miles. However, from September 2026 it will rise each financial year in line with the Retail Price Index (RPI).

From Spring 2026, drivers will be able to find the cheapest forecourt fuel prices using the Department for Energy Security and Net Zero’s open data Fuel Finder app. The app could save users up to £40 a year.  

Changes to Motability 

Motability Operations, which runs the Motability Scheme, has already announced that it will no longer offer vehicles from BMW or Mercedes in its option list. The Chancellor is also removing the VAT exemption on top-up payments made for vehicles leased via the scheme, and applying Insurance Premium Tax to all insurance policies for Motability cars. 

Ministers will also tighten the eligibility for cars under the £2.8bn programme, which leases cars to people with disabilities who receive the personal independence payment (PIP). It is also looking at the price cap for vehicles on the scheme. There is currently a £45,000 cap on petrol cars and a £55,000 limit on electric vehicles. 

Salary sacrifice reductions

Salary sacrifice car schemes, which allow employees to exchange part of their pre-tax salary for a vehicle, are a hugely popular, cost-effective way for drivers to lease new electric vehicles. 

The Government decided not to change the rules on these at present. 

For all the latest reviews, advice and new car deals, sign up to the What Car? newsletter here

Read more: Everything you need to know about the Electric Car Grant >>