Motorists across the UK could face higher prices for new petrol and diesel cars as an unintended consequence of the government's latest tax policy targeting electric vehicles (EVs).
Budget Move Creates Industry 'Impossible Challenge'
Chancellor Rachel Reeves has introduced new pay-per-mile car taxes for electric vehicles. However, leading industry figures warn this measure could backfire, resulting in increased costs for traditional internal combustion engine (ICE) vehicles.
Robert Forrester, chief executive of Vertu Motors, told The Telegraph that the policy creates an "almost impossible challenge" for manufacturers who sell a mix of petrol, diesel, and electric cars. He stated the industry was already under significant pressure to meet strict sales targets before the Budget announcement.
The ZEV Mandate Squeeze
The core of the problem lies in the government's Zero Emission Vehicle (ZEV) mandate. This regulation forces car companies to ensure a rising percentage of their sales are electric, or face substantial fines.
The mandated share is 33% for this year, up from 28% in 2025 and 22% in 2024. It is set to increase gradually until it reaches 100% by 2035.
Isaac Delestre from the Institute for Fiscal Studies (IFS) explained the market mechanics. "What that means is the share of electric cars sold as a share of total cars can’t fall," he said. "So, insofar as this policy does reduce demand for electric cars – the market will have to adjust to keep those shares constant."
He concluded, "So pretty counter-intuitively you could see a tax on electric cars which ultimately will end up increasing the price of petrol and diesel vehicles."
Turmoil and Potential Volume Reduction Predicted
Robert Forrester elaborated on the likely outcome. The pay-per-mile tax, he argues, adds another layer of concern for consumers and businesses considering an EV, potentially dampening demand.
"So it’s completely obvious there’s going to be big turmoil and probably a reduction in volume as a consequence," he warned. To meet the ZEV mandate percentages in a market with suppressed EV demand, manufacturers would have to sell fewer petrol cars overall, which would drive up their price.
Forrester also dismissed the idea that car makers could simply slash EV prices to boost sales. "They’re already losing money," he said, referring to the thin margins on many electric models.
His proposed solution is for the government to reconsider the ZEV targets. "What we need and what will now have to happen is the Government will have to revisit the ZEV targets, and the headline targets will have to move down," he insisted.
The situation presents a significant policy dilemma for the Labour government, aiming to accelerate the green transition while avoiding unintended cost increases for drivers not yet ready to switch to electric.
