Key Highlights
- The UK government has announced a new pay-per-mile tax for electric and hybrid vehicle owners starting in April 2028.
- The tax will be 3p per mile for electric cars and 1.5p per mile for plug-in hybrids, increasing annually with inflation.
- Industry experts argue the new charge could make electric cars less appealing despite government efforts to boost EV sales through other incentives.
- The measures are part of a broader Budget that includes extending fuel duty cuts until September next year before reverting to increases in line with RPI inflation.
Pay-Per-Mile Tax on Electric and Hybrid Vehicles: A New Reality for UK Drivers
In an unexpected move during the recent Budget, the Chancellor of the Exchequer announced a significant change in how electric and hybrid vehicle owners will be taxed. Effective from April 2028, drivers of these vehicles will face a pay-per-mile road charge system. The tax is set to be 3p per mile for fully electric cars and 1.5p per mile for plug-in hybrids, with the rates increasing annually in line with inflation.
This new policy is designed to address concerns over environmental impact while simultaneously generating revenue.
According to the government’s independent forecaster, the Office for Budget Responsibility (OBR), the new charge is expected to bring in £1.1 billion in its first year and grow to £1.9 billion by 2030-31. However, these figures hinge on the number of electric vehicles that are sold over the next five years.
How Will the Pay-Per-Mile System Work?
The implementation of the new tax is expected to involve annual mileage checks for drivers, typically during their MOT (annual vehicle safety check) or around their first and second registration anniversaries for newly registered vehicles. Payment will be integrated into the existing Vehicle Excise Duty system managed by the DVLA (Driver and Vehicle Licensing Agency).
For an electric car driver who covers 8,500 miles in the 2028-29 financial year, this is anticipated to result in a charge of about £255. This amount is roughly half the cost per mile that petrol and diesel drivers currently pay in fuel tax.
However, there are concerns over potential tampering with odometers, which measure mileage.
The government acknowledges that the introduction of the tax could increase the likelihood of motorists altering their vehicle’s readings to reduce charges. To mitigate this risk, the Treasury is currently exploring ways to ensure accurate measurement and compliance.
Industry Reactions and Analysis
The new tax has received mixed reactions from both industry players and stakeholders. The RAC’s head of policy, Simon Williams, expressed relief at the extension of the 5p cut in fuel duty until September next year but noted that this would be “very short-lived given the staggered increase from next September.” He also highlighted the need for a new “Fuel Finder” tool to assist motorists in comparing prices at different petrol stations.
Industry bodies like Ford and the Society of Motor Manufacturers and Traders (SMMT) have expressed strong opposition to the pay-per-mile charge, describing it as “the wrong measure at the wrong time.” They argue that such a tax could undermine demand for electric vehicles. The SMMT welcomed the government’s commitment to invest £1.3 billion in encouraging EV use but warned that this would be insufficient given the negative impact of the new tax.
Experts like Edmund King, president of the AA (Automobile Association), emphasized the need for a balanced approach.
He stated: “The Budget has put drivers at a fork in the road with the chancellor announcing major tax proposals for EV owners.” King noted that while the government needs to raise revenue, it should also ensure that this does not slow down the transition to electric cars.
Other concerns include the potential financial burden on drivers, particularly those without home chargers who are already paying more in public charging fees. Delvin Lane, CEO of InstaVolt which develops and installs chargers, echoed these worries, stating: “We urge the government to work closely with the charging and automotive sectors to co-design a fair, future-proof system that maintains incentives for switching to zero-emission vehicles while ensuring sustainable road taxation.”
Conclusion
The new pay-per-mile tax on electric and hybrid vehicles marks a significant shift in UK motoring policies. While it aims to address environmental concerns and generate revenue, its implementation could have far-reaching implications for both drivers and the automotive industry as a whole. As the Treasury continues to consult on the details of the scheme, all eyes will be on how this new policy unfolds.
