Electric vehicle (EV) drivers in the UK will face a new pay-per-mile road tax starting in April 2028, a measure intended to offset declining fuel duty revenue as more drivers switch to electric cars. Announced in the Autumn Budget by Chancellor Rachel Reeves, the scheme will charge EV drivers 3 pence per mile driven, adding roughly £200-£300 annually to their costs. Plug-in hybrid (PHEV) owners will pay a reduced rate of 1.5 pence per mile.
The Revenue Impact & Sales Forecasts
The government projects this tax will generate around £1.4 billion per year by 2029-30. However, the Office for Budget Responsibility (OBR) estimates the policy could deter EV purchases, leading to 440,000 fewer EVs sold by the end of 2031 than would otherwise be expected. This highlights a tension between revenue generation and the broader push for EV adoption.
Balancing the Cost with Vehicle Pricing
To partially offset the new charge, the government is raising the threshold for the £425 Expensive Vehicle Supplement to Vehicle Excise Duty (VED). From April 2026, only EVs costing £50,000 or more will be subject to the supplement, up from the current £40,000 threshold. This change aims to soften the blow for some buyers, though it does not eliminate the per-mile tax.
Industry Reactions and Concerns
The automotive industry has expressed mixed reactions. Ford UK criticized the timing, calling it a “confusing message” at a critical juncture in the EV transition. Instavolt’s CEO, Delvin Lane, warned that the tax could undermine investment in charging infrastructure by increasing costs for EV drivers. The AA’s president Edmund King emphasized the need for a fair, transparent, and easily understandable system, along with protections for specific groups such as carers and rural drivers.
EV vs. Petrol Costs: A Closer Look
The new tax will narrow the cost gap between running an EV and a gasoline-powered car. Currently, EVs offer lower running costs due to cheaper electricity versus fuel. However, the pay-per-mile charge will reduce this advantage. An analysis shows that even with the tax, EVs remain cheaper to run when charging at home during off-peak hours.
- At an average off-peak electricity rate of 8p/kWh, an ID.3 will cost 5p per mile (2p electricity + 3p tax).
- A comparable gasoline Golf will cost around 12p per mile.
But, if charging at public stations with higher rates (up to 90p/kWh), an EV could become more expensive per mile than a gasoline vehicle.
The pay-per-mile tax is poised to make electric cars less financially attractive, even as the government continues to push for electrification. The policy introduces a new layer of complexity to the EV ownership equation, potentially impacting consumer behavior and slowing down the transition to electric mobility.
