Millions of electric vehicle drivers face a new tax that could cost more than £250 a year, after Chancellor Rachel Reeves announced the new policy in the Autumn Budget.
The new pay-per-mile tax will be introduced in 2028 and see EV motorists pay an extra 3p every mile, in a measure expected to raise £1.4billion in taxes.
Reeves said the move is part of plans to ‘reform our motoring taxes.’
She added: ‘Because all cars contribute to wear and tear on our roads, I will ensure that drivers are taxed according to how much they drive and not just the type of car they own by introducing electric vehicle excise duty on electric cars.’
She said it would help ‘double road maintenance funding in England over the course of this Parliament.’
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In a leaked report ahead of the Budget, the Office for Budget Responsibility wrote that the measure will mean 440,000 fewer EVs on the road because of the policy.
How will pay-per-mile work?
Electric car drivers will now pay a road charge of 3p per mile, and plug-in hybrid drivers will pay 1.5p per mile from April 2028.
It means an average EV owner driving 8,500 a year could face a charge of up to £255 a year in 2028-29.
That is about half of the cost that petrol and diesel drivers pay in fuel tax per mile.
The price will rise annually with inflation, though the government has not yet announced exactly how the tax will be paid.
Labour is trying to phase out sales of new petrol and diesel cars by 2030.
But the OBR wrote that the new charge ‘is 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.’
The policy also came under fire from car industry figures with Ian Plummer, chief commercial officer at Autotrader saying Reeves is ‘driving with the handbrake on’.
‘This sends completely the wrong signal,’ he said, adding that mvoes to make EVs more affordable would only offset a small portion of the lost sales.
Meanwhile, Reeves will also increase fuel duty for the first time in 16 years, with the 5p per litre cut in duty introduced by the Conservative government in 2022 only being extended until September 2026.
From April 2027, fuel duty rates will be increased annually with inflation, the document said. The duty has not risen since 2010.
RAC head of policy Simon Williams said: ‘Drivers will be relieved the Chancellor has decided to keep the 5p duty cut in place for now as it saves them more than £3 a tank.
‘But this relief will be very short-lived given the staggered increase from next September.
‘Without the discount, drivers would still be paying more for a litre of petrol than they were prior to Russia’s invasion of Ukraine in February 2022 which sent pump prices rocketing to record levels.’
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