Drivers of electric vehicles (EVs) will have to pay a new per mile tax from April 2028 as part of measures announced in the Autumn Budget. The electric Vehicle Excise Duty (eVED) scheme will apply to battery electric car owners, who will pay 3p per mile, and plug-in hybrid owners, who will pay 1.5p per mile. This will be on top of the standard Vehicle Excise Duty rates, which are payable on EVs for the first time this year. There will be no additional levy for full hybrid cars, which do not have plug-in battery charging systems.
Chancellor Rachel 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, and not just by the type of car they own.
"By introducing the Electric Vehicle Excise Duty on electric cars, this will be payable each year alongside vehicle excise duty at 3p per mile per electric car and 1.5p for plugin hybrids, helping us to double road maintenance funding in England over the course of this parliament."
Why are electric vehicles being taxed?
The Office for Budget Responsibility (OBR) has estimated that the electric Vehicle Excise Duty (eVED) could raise £1.1 billion in 2028-29 for the Treasury, rising to £1.9 billion in 2030-31. This extra money could help balance out falling fuel duty revenue, which has suffered from a nationwide decline in driving over the last two decades.
Drivers of non-electric vehicles are driving fewer miles on average than they were 20 years ago, while many are switching to electric vehicles for both environmental and cost reasons. If this trend continues at its current pace, the Treasury projects a fuel-duty shortfall of as much as £12 billion a year by 2040.
Balancing changing driver habits and preferences by increasing the rate of fuel duty is an option, but would be breaking a cross-party political trend. Fuel duty has been frozen since 2011 and was even cut in 2022, so a hike could be seen as too much of a political risk. Instead, the Treasury has turned to electric vehicle drivers to pick up the shortfall, focusing on linking vehicle taxes to road use rather than emissions.
How will the electric Vehicle Excise Duty (eVED) scheme work?
Drivers of UK-registered EVs will have to pay a new charge each year, based on how many miles they have driven, regardless of whether those miles were driven inside or outside of the UK.
While the government has announced the rate of the new levy - 3p per mile for electric vehicles and 1.5p for plug-in hybrids – the exact workings are still under consideration. At those published rates, driving 5,000 miles in a year will cost EV drivers £150, while the equivalent fuel duty would, on average, cost petrol and diesel drivers around £ 300.
Payment of the levy is expected to be integrated into the existing Vehicle Excise Duty system, administered by DVLA. As it stands, drivers will self-report an estimated mileage for the year ahead and pay through either a lump sum or instalments. Once the estimate is checked against annual MOT mileage records at the end of the year, any overpayment would be refunded and any underpayment would need to be settled. This is complicated by the fact that new electric vehicles do not require an MOT in the first three years, so some people may need to have their odometer professionally checked each year.
The government has also said that it is aware a per mile system could incentivise tampering with a vehicle's odometer to reduce the displayed mileage, known as 'clocking'. It said the eVED "may increase the likelihood of motorists choosing to clock their vehicles", but it was exploring mitigation options.
The hope is that by delaying implementing eVED until 2028, there will be time for the government to iron out such issues and fine-tune the scheme.
What impact will the electric Vehicle Excise Duty (eVED) scheme have?
It has been argued that a shift away from centring vehicle duty around harmful emissions will drive down enthusiasm for cleaner electric vehicles and undermine the government's net-zero targets and its plans for all new cars to be electric or hybrid from 2030, when a ban on the sale of new petrol and diesel cars is implemented. This is compounded by the decision to once again freeze fuel duty at 52.95p a litre for petrol and diesel – the 16th year in a row without a rise.
Tanya Sinclair, CEO of Electric Vehicles UK, said the plans send "mixed signals, which will impact market confidence."
However, there are efforts to balance out the new costs for EV drivers. The Autumn Budget contained details of an expansion to the Electric Car Grant scheme, which offers drivers a discount of £1,500 or £3,750 on new electric cars if they meet certain environmental targets, and further investment in public charging points. The government will hope this is enough to incentivise EV purchases, though the OBR did forecast that, even taking into account these mitigation policies, the eVED would reduce electric vehicle sales on average by a net 24,000 a year over the next five years.
Mike Hawes, Chief Executive of car industry trade body SMMT, said: "Manufacturers have invested to bring more than 150 EV models to market. However, the pressure to deliver the world’s most ambitious zero emission vehicle sales targets – whilst maintaining industry viability – is intense. With even the OBR warning this new tax will undermine demand, government must work with industry to reduce the cost of compliance and protect the UK’s investment appeal."
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