Chancellor Rachel Reeves Unveils New Mileage-Based Tax for Electric Vehicles
Chancellor Rachel Reeves has confirmed the introduction of a new pay-per-mile tax targeting owners of electric vehicles (EVs) and plug-in hybrids. The announcement, made as part of broader tax reforms, will see drivers charged based on the distance they travel, with rates set at 3p per mile for EVs and 1.5p per mile for hybrids.
Details of the New Tax System
The new tax, known as electric vehicle excise duty (eVED), is scheduled to come into effect from April 2028. It will operate alongside the existing vehicle excise duty (VED), meaning drivers will pay for both their vehicle type and mileage. According to government calculations, motorists covering approximately 12,000 miles per year could face an additional charge of up to £360 annually, depending on their vehicle type.
The Government argues that this move will create a fairer vehicle tax system for all road users. Treasury minister Dan Tomlinson stated, "At Autumn Budget 2025, the Government announced the introduction of electric vehicle excise duty (eVED), a new mileage charge for electric and plug-in hybrid cars, which will come into effect from April 2028. Drivers will pay for their mileage alongside their existing vehicle excise duty (VED)."
Impact on Drivers and Industry Response
This tax will particularly affect those who use their cars frequently, such as individuals with long commutes or high annual mileage. The Government points out that owners of petrol and diesel vehicles are already subject to similar charges through fuel duties, which are inherently mileage-based.
However, the announcement has sparked criticism from industry experts who believe incentives for switching to electric should remain in place. Simon England, founder of ALA Insurance, expressed concerns: "Drivers are being encouraged to switch to electric cars ahead of the 2030 ban on ICE vehicles, but financial incentives are quickly disappearing. If EV drivers are expected to pay the same, or more, than petrol and diesel drivers, then that’s a legitimate barrier that will deter thousands of road users from switching."
He added, "The rise in EV adoption will leave quite a gap in the government’s revenue from road tax, but raising taxes for electric cars is definitely off-putting to people considering a switch, especially when they won’t have a choice from 2030, as it stands."
Broader Context and Future Implications
The introduction of this tax comes as the Government aims to address revenue gaps expected from the increasing adoption of electric vehicles, which traditionally contribute less through fuel duties. By implementing a mileage-based charge, the system seeks to ensure that all drivers contribute fairly to road maintenance and other transport-related costs.
This development is a significant consideration for drivers planning to switch to electric vehicles in the coming years. With the 2030 ban on new internal combustion engine (ICE) vehicles approaching, the financial landscape for motoring is evolving rapidly. The new tax underscores the shifting priorities in vehicle taxation, moving towards a model that reflects actual road usage rather than solely vehicle type.
