Confirmed: Pay-per-mile tax to be announced for EV drivers in this month's Budget
A new pay-per-mile tax for electric car drivers will be announced in this month’s Budget in an attempt to offset fuel duty losses...
Electric car drivers will be hit with a pay-per-mile tax as part of a number of economic reforms to be announced in the winter Budget on 26 November.
The pay-per-mile plans, which have been confirmed as accurate to What Car? by a senior industry insider, are Chancellor Rachel Reeves' attempt to offset the losses from fuel duty as more and more drivers move away from petrol and diesel cars.
The new changes, first reported by the BBC, The Telegraph and the Financial Times, will see EV drivers required to pay 3p per mile, on top of other road taxes, including the £195 in vehicle excise duty (VED) they must pay annually.
The new scheme is expected to be implemented from 2028 following a consultation. However, the industry insider we spoke to heavily criticised the decision because of the "mixed messages" it delivers.
On the one hand, the Government is attempting to boost sales of new EVs through the Electric Car Grant and the slashing of red tape to make it easier for roadside chargers to be installed. But the pay-per-mile scheme will significantly increase the costs involved in running an electric car, and could dissuade many from making the switch.
With the additional pay-per-mile tax, EV drivers covering an annual average of 8000 miles will need to pay £435 per year – £240 for the pay-per-mile tax and £195 in road tax (VED).
According to The Telegraph, the tax would be based on individual drivers’ estimates of their road usage for the year ahead – and, if they ended up driving fewer miles by the end of the year, they would have a credit to carry over. However, if they exceeded their mileage estimation, they would face a top-up charge.
The new tax will also affect drivers of hybrid cars at a lower rate – but specific details haven’t been confirmed.
It’s estimated that the changes will raise £1.8 billion per year in revenue by 2031. For reference, the Society of Motor Manufacturers and Traders stated that there were 1.3 million EVs on UK roads back in April – and The Telegraph’s report estimates that this number will rise to six million by the time the new tax comes into force. However, the new changes could instead discourage drivers from making the switch to electric, and the tax may not generate as much revenue as projected.
This comes after the Government has backed a number of EV incentives, including pledging £650m towards the Electric Car Grant, introducing savings of up to £3750 on eligible electric vehicles in an attempt to boost uptake.
“We want a fairer system for all drivers whilst backing the transition to electric vehicles,” a government spokesperson told the BBC. “It is right to seek a tax system that fairly funds roads, infrastructure and public services.”
Despite the Government’s stance in favour of EV uptake, this latest move could derail plans for many drivers to make the switch. Furthermore, until April this year, EV drivers were not required to pay any VED tax – but combined with this new move, the additional tax risks hindering electric car sales.
Our insider expressed his frustration at the move, and AA president Edmund King told the BBC that the Government must “tread carefully unless their actions slow down the transition to EVs”.
Road pricing for EVs could be the thin end of the wedge. The scheme, as it is understood, would be quick and simple to roll out to drivers of other kinds of vehicle. The estimated pre-payment method removes the need for costly and complex tracking and telematics systems, and removes many of the concerns around privacy.
For all the latest reviews, advice and new car deals, sign up to the What Car? newsletter here
