Chancellor Rachel Reeves has confirmed that electric and plug-in hybrid vehicle drivers will soon face a pay-per-mile road tax, as the government seeks to recover lost fuel duty revenue. The new charge, set at 3p per mile for EVs and 1.5p per mile for plug-in hybrids, could result in an annual cost of £240 for drivers covering 8,000 miles.
Policy Details and Timeline
Announced during the November Autumn Budget, the pay-per-mile system aims to address the decline in fuel duty income as more drivers switch to electric vehicles. The consultation on the scheme has now closed, with finer details expected to be revealed before its planned rollout in Spring 2028. Under the proposed rates, an EV driver covering 8,000 miles per year would pay £240, while a plug-in hybrid driver would pay £120 for the same distance.
Warning of Fiscal Backfire
However, the policy has faced criticism from industry experts. New research by Beama, a trade body representing energy infrastructure companies, suggests the Treasury could lose up to £630 million in VAT receipts in 2028 alone. This loss is attributed to drivers being deterred from switching to EVs due to the new tax. Matt Adams of Beama warned in a letter to Exchequer Secretary Dan Tomlinson MP that the policy is a fiscal own goal, stating: "Introducing the pay-per-mile policy early is a fiscal own goal. It will slow EV uptake, reduce EV charging investments and cost the UK economy more than the Treasury stands to raise with the taxation."
Impact on Drivers
For drivers, the new charges mean careful consideration of mileage and vehicle choice. Carwow advises plug-in hybrid owners to keep their batteries topped up to maximize value. A Treasury spokesperson defended the policy, saying: "This Government is committed to the EV transition, boosting support to save drivers up to £3,750 on a new car and investing over £3 billion into UK manufacturing and more charging points."
The pay-per-mile system represents a significant shift in motoring taxation, with potential implications for EV adoption and government revenue.
