Electric vehicle owners to face pay-per-mile tax

A new tax for electric and hybrid vehicles has been announced by the chancellor in the Budget. From April 2028, electric car drivers will pay a road charge of 3p per mile, while plug-in hybrid drivers will pay 1.5p per mile, with the rates going up each year with inflation. The new tax is about "half the fuel duty rate paid by drivers of petrol cars", according to the government's independent forecaster, the Office for Budget Responsibility (OBR). The chancellor also committed to extending the 5p cut in fuel duty until September next year, after which it is set to increase annually by the RPI measure of inflation.

How will pay-per-mile work?

Drivers will pay the charge based on how many miles they drive from April 2028.

Motorists will have their mileage checked annually, typically during their MOT as is already the case, or for new cars, around their first and second registration anniversary, the Treasury said. Payment will be integrated into the existing Vehicle Excise Duty system that is administrated by DVLA. Under the measures, an electric car driver clocking up 8,500 miles in the 2028-29 financial year is expected to pay about £255 - about half the cost per mile that petrol and diesel drivers pay in fuel tax.

However, mileage readings will be based on in-vehicle odometers, which the government acknowledges can be subject to tampering, or "clocking". It recognises that the introduction of the tax "may increase the likelihood of motorists choosing to clock their vehicles", and said it was looking at ways to mitigate this. The government is now consulting on exactly how the scheme will work.

How much money will it raise?

According to the OBR, the new per-mile charge is expected to bring in £1.1bn in the 2028-29 financial year, rising to £1.9bn by 2030-31. However, the amount of money it actually raises will depend on how many people buy electric cars over the next five years, with the report adding the yield "is uncertain". The tax applies to UK-registered EVs, regardless of where in the world the vehicle is driven. EVs registered abroad but are driven in the UK are exempt from the charge. All new cars will have to be electric or hybrid from 2030, when a ban on the sale of new petrol and diesel cars comes into force. But some in the industry argue this new tax could make electric cars less appealing.

The OBR said the new charge was "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," it added. Overall, the charge is forecast to result in about 440,000 fewer electric car sales, though other government policies could help offset around 320,000 of those. Under the Vehicle Excise Duty, which became payable on EVs for the first time this year, a tax for people buying luxury electric cars will rise in April 2026 from £425 to £440 per year for vehicles costing more than £50,000 - an increase from the previous £40,000 threshold.

Edmund King, president of the AA, said: "The Budget has put drivers at a fork in the road with the chancellor announcing major tax proposals for EV owners. Drivers fully understand that the government needs to get the balance right between raising cash for roads investment, whilst ensuring it doesn't slow down the transition to electric cars in order to meet environmental targets."

Source: BBC News

For full details of the budget visit: https://www.gov.uk/government/collections/budget-2025