Rachel Reeves has unveiled a new tax on electric and plug-in hybrid vehicles as part of her autumn budget.
In her second Budget as chancellor, Reeves announced electric car owners will be charged 3p per mile, while plug-in hybrid drivers will pay 1.5p per mile, with both rates set to increase annually in line with inflation. The new tax is scheduled to take effect from April 2028.
The Office for Budget Responsibility, which accidentally released the details early, said in a report that the new charge amounts to ‘half the fuel duty paid by drivers of petrol cars.’
Based on OBR calculations, an electric vehicle (EV) owner driving roughly 8,500 miles in the 2028-29 financial year would pay about £255, around half the per-mile fuel tax for petrol and diesel vehicles.
The OBR predicts the mileage-based tax could generate £1.1bn in 2028-29, rising to £1.9bn by 2030-31, though it cautions that revenue will depend on the rate of EV adoption, stating that yield ‘is uncertain’.
With a ban on new petrol and diesel cars coming into force in 2030, the new tax could affect buyers’ choices. The OBR warns: ”This new charge is likely to reduce demand for electric cars as it increases their lifetime cost.
‘To meet the mandate, manufacturers would therefore need to respond through lowering prices or reducing sales of non-EV vehicles.’
To support the shift to cleaner vehicles, the government is set to raise the threshold for the ‘expensive car’ supplement from £40,000 to £50,000 starting in April 2026 and extend the EV grant scheme until 2029-30, at a cost of roughly £300m per year.
Since the news broke, environmental campaigners have raised concerns about the policy’s potential impact on air quality. Mike Childs, head of policy at Friends of the Earth, described the tax as ‘premature’.
‘The cost of public charging needs to be brought more in line with home-charging before this measure is implemented,’ Child said. ‘A rapid shift to EVs is vital for cutting carbon and cleaning up our air. As the government’s own climate plan makes clear, progress happens faster with incentives, not penalties.’
Mike Peirce, executive director of systems change at Climate Group, added: ‘Make no mistake, by adding a pay-per-mile tax on EVs, the chancellor is gambling with the UK’s EV market just as it’s finding its muscle.
‘It threatens the government’s approach to reducing emissions and reaching its own ZEV Mandate. In a highly competitive global race for electric vehicle investment, this will leave investors confused.’
Image: Ralph Hutter/UnSplash
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