Electric vehicle owners to face pay-per-mile tax

A new tax for electric and hybrid vehicles has been announced by the chancellor in her autumn Budget.

Electric car drivers will pay a road charge of 3p per mile, while plug-in hybrid drivers will pay 1.5p per mile from April 2028, 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).

Details of the new charge emerged ahead of the Budget when the OBR published its economic forecast early, an error which the watchdog apologised for and said it was investigating.

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.

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, how much 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".

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 this new tax could make electric cars less appealing.

"This new charge is likely to reduce demand for electric cars as it increases their lifetime cost," the report says.

"To meet the mandate, manufacturers would therefore need to respond through lowering prices or reducing sales of non-EV vehicles."

Overall, the charge is expected to result in about 440,000 fewer electric car sales, though other government policies could help offset around 130,000 of those.

Because of this drop in sales and slightly lower driving distances, the total money raised by the charge could be £200m less by 2030-31.

To encourage more people to buy electric cars, the government is introducing new support measures which includes raising the price limit for the expensive car supplement duty from £40,000 to £50,000 starting in April 2026, the OBR's report also says.

The government is also extending its electric car grant scheme to 2029-30, costing about £300m a year on average.

In her Budget announcement, the chancellor also committed to extending the 5p cut in fuel duty until September next year, after which it will increase annually by the RPI measure of inflation.

Fuel duty has not risen since April 2010.

The RAC's head of policy, Simon Williams, said the five-month fuel duty freeze was a "relief" but it would 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."

He said a new "Fuel Finder" tool, launching in early 2026, would be a big help for motorists making it easier for them to compare fuel prices at different petrol stations.

Delvin Lane, chief executive of InstaVolt which develops and installs chargers, said the tax could discourage people from switching to electric cars.

He said drivers without home chargers were already paying more in tax for public charging, and rural and low-income drivers would be disproportionately affected.

"We urge the government to work closely with the charging and automotive sectors to co-design a fair, future-proof system that maintains incentives to switch to zero-emission vehicles while ensuring sustainable road taxation."

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."