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Chancellor Rachel Reeves has confirmed that drivers of battery electric vehicles (BEVs) will pay 3p per mile from April 2028, with plug-in hybrid car drivers paying 1.5p per mile. Charges will rise each year in line with inflation and electric vans will be exempt. The details of how the scheme will work still appear yet to be worked out.
This is being introduced as a result of falling revenue from fuel duty. The tax rises for EVs come alongside a further freeze to fuel duty rates for petrol and diesel drivers until September 2026.
A typical EV driver covering 8,500 miles per year would pay £255 in 2028–29. This is around half the per-mile rate for fuel duty on ICE vehicles.
EVs will also still have to pay Vehicle Excise Duty, but the Chancellor raised the Expensive Car Supplement (ECS) for EVs from £40,000 to £50,000, as from April 2026, meaning that more EVs won’t have to pay an additional ‘luxury car tax’ of £425 added to the standard VED rate of £195 for five years, which makes the annual cost £620.
The Office for Budget Responsibility (OBR) has said that as a result of the pay-per-mile rules there will be around 440,000 less EVs on the road, which will be offset by around 130,000 vehicles by the increase in sales from the Electric Car Grant.
The Government said it would invest a further £1.3bn into the Electric Car Grant, which allows as much as £3,750 off the price of an EV under £42,000.
The government is also due to be investing an additional £200m in the EV charging infrastructure roll-out, but there was no change to the 20% VAT on public EV charging, even though domestic charging is only subject to 5% VAT.
Luxury vehicles are also due to be removed from the Motability Scheme.
The Budget included measures to reduce household energy bills through the temporary removal of levies under the Renewables Obligation scheme, which will apply through the 2026-27, 2027-28, and 2028-29 financial years. This could save an EV driver around £10-15 per month on charging costs. But nothing has been done to reduce the much higher cost of electricity for public charging.
Electric car salary sacrifice schemes remain completely unaffected by Budget 2025 changes, with the 3% Benefit-in-Kind rate secured until April 2030, whilst other salary sacrifice areas like pensions face restrictions from April 2029.
Paul Clarke, Green Car Guide’s Editor, says:
“The additional 3p per mile tax on electric car drivers shows that the government is not serious about encouraging the transition to electric cars – despite EVs having zero tailpipe emissions, and therefore helping in the fight against climate change and air pollution. The government should be taking measures to support EVs and make them more affordable, not make them more expensive. This just adds further confusion for drivers considering EVs.
“This is extremely disappointing from a government that made big promises about green growth in the run-up to the election. The Chancellor should be reducing electricity costs for public charging and targeting fossil fuels not clean fuels to make up her financial shortfall.”
Tanya Sinclair, CEO, Electric Vehicles UK:
“The UK’s motoring tax system needs fundamental, long-term reform. Change is inevitable as more drivers switch to electric, and no government enjoys having to wholesale reform car taxation. But the key question is how. The new pay-per-mile scheme proposed today must be designed carefully, consulted on properly and explained transparently.”
Vicky Edmonds, Chief Executive Officer of EVA England
Budget 2025 – what will it mean for driving electric?
We all love our EVs. 95% of us would recommend them to friends and family; and two thirds of us believe our general experience of driving electric (and using the public charging network) is improving.
However, we are in a situation where only 5% of cars on the road are electric; where half of those without driveways are paying more to run their EVs than their old petrol and diesel cars; and where nearly 40% of drivers believe electric will never work for them.
So whilst we welcome the fact that the Budget recognised the need for more support to make the transition to EVs a success, the parallel introduction of a new electric VED tax in only two years is like putting the brakes on any momentum we have been building to get more and more drivers to switch to electric.
Plus, it is adding extra cost to those reliant on public charging and already paying more to drive an EV – and let’s be clear, that is already a huge disincentive to switch to electric. Those households without a driveway currently make up less than 10% of the EV driving population but almost 40% of the full driving population.
No-one is suggesting that the discussion of how to make EV drivers pay their way in the future shouldn’t happen, and many of our members believe it is the right thing to do. But many also believe this is the wrong time to introduce such a scheme.
It is therefore now vital that the driver’s voice is central to discussions around how any eVED scheme will be introduced and monitored. And it is critical that the support package around it genuinely tackles the biggest barriers preventing more people from switching to electric: the charging divide between those who have driveway and those who do not; and the fact that incentives targeted at the new car market alone will not help the majority of households overcome the still significant upfront costs of buying an EV.
The £1.3bn top up to the Electric Car Grant announced yesterday needs to support lower income households to access EVs, and help boost the used EV market; benefit in kind rates need to be extended beyond 2030 and to the used market; and the public charging review needs to move swiftly to take concrete steps to bring down the costs of charging, particularly for those without driveways.
These are the points that EVA England be making as we continue our discussions with HM Treasury and the Department for Transport in the coming weeks.
Melanie Lane, Chief Executive at Pod adds:
“Today’s Budget decisions have further complicated the outlook for motorists and manufacturers that are looking for clarity on their commitments to the EV sector.
“Increased funding for the Electric Car Grant represents a long-awaited vote of confidence that will deliver growth for the UK, but introducing a national pay-per-mile tax on EVs while extending the freeze on fuel duty is at odds with the Government’s messaging about “backing the switch”. This confused policy approach will shake consumer confidence and potentially jeopardise investment in the sector at a critical moment.
“We are already falling behind on the ZEV mandate that expects one in three cars sold to be zero-emissions next year and today’s confirmation of additional mileage costs from 2028 will penalise motorists and manufacturers who are fulfilling their end of the bargain.”
