The UK government’s new pay-per-mile tax on electric cars will also include plug-in hybrid cars, chancellor Rachel Reeves announced in the long-awaited Autumn Budget on Wednesday.
The news was originally revealed within documents released in error by the Office for Budget Responsibility (OBR) ahead of Westminster's announcement.
Those documents also confirmed plans by the government to end the 5p freeze on fuel duty, which will therefore increase for the first time since 2010, make changes to the 'luxury car tax', provide extra cash for the Electric Car Grant (ECG) and much more.
Pay-per-mile tax to hit EV and PHEV drivers
The new pay-per-mile tax – or 'eVED' – is being brought in as part of an effort to claw back lost revenue from the duty imposed on petrol and diesel as motorists transition away from ICE vehicles.
The levy is set at 3p per mile driven in an EV and 1.5p per mile driven in a PHEV. This will come into effect from April 2028.
The OBR forecasts that His Majesty's Treasury will thereby raise £1.1 billion in the 2028-29 tax year, increasing to £1.9bn by 2030-31.
However, “the new charge is likely to reduce demand for electric cars, as it increases their lifetime cost”, said the OBR.
It also forecasts that the new tax will preclude some 440,000 EV sales between now and March 2031.
This will be ameliorated, however, by 320,000 of increased sales as a result of the ECG, which the government announced this July. This figure was adjusted hours after the OBR warned the ECG would account for just 130,000.
The OBR warned that the decrease in EV demand resulting from eVED will make it harder for car makers to satisfy the government’s ZEV mandate. This requires an EV sales mix of 28% this year, rising to 80% by 2030.
As such, it notes that “to meet the mandate, manufacturers would therefore need to respond through lowering prices or reducing sales of non-EV vehicles”.
Speaking in the House of Commons, Reeves said: "Because all cars contribute to the wear and tear on our roads, I will ensure that drivers are taxed according to how much they drive, not just by the type of car they use.”
She claimed this would “double” the road maintenance fund in England “over the course of this parliament”.
How the tax will be calculated is still to be revealed. Reports suggest that EV drivers will be required to estimate and declare their annual mileage when they pay VED.
Within the Budget documents is a statement that "further detail on how eVED will work" will be revealed when it publishes the scheme's consultation.
It did confirm, however, that there "will be no requirement to report where and when miles are driven" or install trackers in cars.
5p fuel duty freeze extended... and then to end
Fuel duty will increase for the first time since 2010, as the government has announced that it will end the 5p freeze next year.
