Chancellor Rachel Reeves has confirmed that electric vehicles will be subject to a pay-per-mile taxation from 2028. (add in a move that’s been slammed… based on reactions on the day)
In order to raise a predicted £1.8billion for the government’s coffers by 2031, the Chancellor used her Autumn Budget to confirm the Treasury’s controversial road pricing plans which seek to claw back lost fuel duty revenue as the nation moves to zero emission vehicles.
Road pricing has been batted around parliament for years as MPs have struggled to find ways to fill the £40billion black hole created by the switch to EVs and the loss of fuel duty.
Today Reeves has confirmed road pricing reports – which first emerged after her speech to the Commons on 26 November – saying…. INSERT REEVES STATEMENT QUOTE.
Pending a public consultation, pay-per-mile would see EV owners having to pay a 3p charge per mile they drive. This is on top of the £195-a-year VED rate electric car drivers now have to pay since April this year.
Plug-in hybrid (PHEV) cars will also be subject to a pay-per-mile charge but a lower pence-per-mile rate.
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INSERT FULL REEVES QUOTE
CHECK PPM NUMBER IS CORRECT AND THAT MONITORING/PAYMENT IS AS EXPECTED
Pay-per-mile is a road pricing system that levies a fee for each mile driven. The fee proposed is 3p per mile.
It’s usage-based, so those who use the roads more pay more – and the idea is that it encourages people to use cars less and public transport more.
The revenue will go towards maintaining the UK’s roads and infrastructure in the same way fuel duty does.
To avoid bringing in an invasive system where black boxes are fitted that track vehicle mileage, Reeves will instead ask EV driver to estimate their annual mileage and pay a fee based on that prediction.
If an EV driver overestimated their mileage, the remaining money will be carried over as credit to cover next year’s mileage.
However, if they drive further than originally estimated, they would be required to top up their payment to the Government.
If the Government only charges people once a year then many drivers will face a large lump sum that may be hard to afford in a single payment.
INDUSTRY RESPONSES – 3/4 SHORT COMMENTS
How will it impact EV owners?
This is Money and Daily Mail asked five electric car owners how the pay-per-mile charge will impact their ownership and whether they’d go electric again under these conditions….
EV owner Gill Nowell has been driving EVs since 2012 and would still pick an EV today even with pay-per-mile because she saves so much in running costs by charging at home but she doesn’t see pay-per-mile as fair
Gill Nowell – would still pick an EV because charging at home saves her so much money
Cheshire business founder, Gill Nowell, 52, tell us: ‘I’ve driven EVs through work since 2012, and I’ve had an electric car since 2019. Even with pay-per-mile, I’d still choose electric. If I end up paying around £250 a year through pay-per-mile, I’m still saving about £750 in running costs by charging at home. It costs me less than £5 to fully charge at home overnight.
‘But the real issue is fairness. According to EVA England, half of drivers without driveways already find their EVs more expensive to run because public charging costs more. Let’s not penalise EV drivers now, especially when, like myself, over 95 per cent of us would never go back to the ICE (internal combustion engine) age.’
Tesla owner Jacob Eden wouldn’t have bought an EV if he knew pay-per-mile was coming. He would still go ahead with it in place because he prefers his Tesla to a combustion car but he’s in a good position where his employer picks up the pay-per-mile tax costs
Jacob Eden – Tesla owner who uses his EV for business
Would you have bought an EV if they knew this was coming?
Jacob, 32, who works in Telecommunications and lives in Southend-on-Sea, anwers: ‘Probably not, I understand that EV drivers must also pay their way, and rightly so, but this is too soon. It’s mixed messaging and confusing for the consumer.’
If you were buying an EV with pay-per-mile in place would you still go ahead?
‘I think we still would, because I far prefer my EV to combustion, but it would certainly make me think twice. And that means there are a lot of people out there who would hesitate and then potentially not switch.’
How much extra will it cost you?
‘I’d be able to expense the miles for business, so that would be felt by the employer. However, it would certainly add more to our home energy bill at a time when bills are already a hefty chunk of our outgoings.’
Do you think pay-per-mile is fair?
‘It’s fair if it’s applied to all vehicles, not just EVs. What would be fair is unfreeze the fuel duty and bring in money that way and then potentially look at pay per mile for all vehicle types.’
How will it change your EV ownership?
‘My EV is through my business so there’s no real change for me.’
Will you still save by owning an EV or will savings be swallowed up by pay-per-mile?
‘Not entirely and the running costs are still far lower. We really love our EV and hope more people get the right signals to help them make the switch.’
Marin Samuels has two EVs in his household and would still buy an EV with pay-per-mile in place. If the revenue goes towards maintain roads he thinks it is largely fair – unless you live rurally
Marvin – two EV household who uses his EV for his commute
If you were buying an EV with pay-per-mile in place would you still go ahead?
Marvin Samuels, a 50-year-old Test and Release Manager from Chester, answers: ‘If I was planning to buy an EV as the potential pay-per-mile plans were announced I would still buy an EV.’
Do you think it’s fair?
‘If the revenue collected goes directly to maintaining UK roads, then I think it is mostly fair, although those living in rural areas, a long distance from their place of work, or that need to travel for their job, it could become unsustainable for those individuals.’
Will you still save by owning an EV or will savings be swallowed up by pay-per-mile?
‘Having calculated the potential additional costs based on my regular commute and additional trips for work, and compared them to the cost of running an ICE vehicle, financially it would still be beneficial to me and my family to own an EV. Personally, the reduced running costs are a ‘benefit of’ rather than a ‘reason to’ switch to an EV.
‘We currently have two EVs and a petrol car; the petrol car spends most of its time in the garage and is used only occasionally. Paying for petrol for it feels excessive these days and running two EVs has proved more cost effective for us.’
Gary Comerford says that the timing for EV pay-per-mile is ‘pretty poor’ and that an EV ‘discincentive seems counter intuitive’
Gary – EV driver who will stick with his electric car but thinks the government should wait
Is pay-per-mile a good idea?
Gary Comerford, a 58-year-old business consultant from Reading, says: ‘The timing on this is pretty poor. EV’s make up around five per cent of the car parc in the UK and the government is committed (through the ZEV Mandate) to increase that by 2030. Adding a financial disincentive – soon after adding a financial incentive in the form of the new car grant, and a disincentive in the form of adding VED to electric cars – seems counterintuitive.
‘Wait until EVs form a larger proportion of the overall car parc then implement this. It will be far better received.’
How will it change your EV ownership?
‘I will, perhaps, consider the financial implications of taking a journey by car in favour of not taking this journey if it wasn’t a necessary trip. 3p/ mile is not a great deal. But £300 per year can add up if you don’t watch those miles.’
Will you still save by owning an EV or will savings be swallowed up?
Doug Palmer’s EV has covered a staggering 293,000 miles and he says pay-per-mile will cost him an extra £600 a year
‘In my case this will still leave me financially better off than owning and running an electric vehicle. The savings will be reduced per year but not enough to make a difference to my use case for owning one.’
Doug Palmer – long distance EV driver who’s current EV has covered 293,000 miles
Would you have bought an EV if you knew this was coming?
‘Yes.’
If you were buying an EV with pay-per-mile in place would you still go ahead?
‘Yes.’
How much extra will it cost you?
‘Pay-per-mile will cost me in excess of £600 per annum.’
Do you think it’s fair?
‘No I don’t think it fair. It is penalising EV owners, when we need to be encouraging more people to switch. There is no equivalent penalty for high mileage ICE vehicle owners.
‘If they are going to introduce this, they need to cap it at say £300 per annum. For cars and light commercial vehicles, until we reach 50-plus per cent of vehicles being BEV. Then review.’
Will you still save by owning an EV or will savings be swallowed up by pay-per-mile?
‘It won’t change my EV ownership as I travel whenever or wherever I want to. I will still save over ICE car ownership due to very low maintenance and free charging. But I will have to put money aside, especially if they charge for the mileage I cover in Europe as well as my UK mileage.’
Doug asks if pay-per-mile will replace the recent VED changes?
‘My car is now £20 per annum. I feel some EV car and van owners have been unfairly penalised, while there are second-hand diesel cars that still pay £0 to £30! How can that be right?!’
How much will it cost EV drivers per year?
EV owners typically cover higher annual mileage than drivers of petrol cars, recent analysis has shown. Only motorists with diesel models travel further than those with EVs.
In 2024, owners of electric cars under three years old drove an average of 10,054 miles, a study by the RAC Foundation calculated.
Petrol models travelled only 7,585 miles while diesel cars just surpassed EVs at 10,728 miles.
At a 3p-a-mile charge, this would mean the typical EV owner would need to cough up £301.62 per annum.
To put the cost into perspective, EV drivers would be looking at a charge of just over £12 to cover a trip from London to Edinburgh.
Driving 102 miles from Cambridge to Oxford would cost £3, while the 73-mile journey from Liverpool to Leeds will be £2.
And yet its still expected that EV owners will save money despite the pay-per-mile taxation, with the Energy and Climate Intelligence Unit think tank estimating that EVs would still be ‘£1,000 cheaper to run per year than petrol cars’.
This is based on the overall running costs of the 10 best-selling EVs last year, calculated on the premise that 80 per cent of charging is carried out at home (where it is cheapest – and quite significantly) and 20 per cent using the public network.
How much will it cost hybrid owners?
AWAITING BUDGET ANNOUNCEMENTS
Is pay-per-mile taxation fair?
This is the billion dollar question.
Ministers are framing road pricing as a measure of fairness because petrol car drviers currently pay £600 a year in fuel duty.
EV drivers on the other hand have had years without having to pay fuel duty, and until April they were also exempt from paying VED.
It should also be acknowledged that MPs were told road pricing was fair following a December 2020 inquiry into the matter. It was only because the taxation was seen as too politcally toxic by the previous administration that the recommendations to bring it in where shunned.
The comittee concluded that road pricing ‘has always been the most effective way to tackle road congestion and pollution’ – and would fill the Treasury’s £40billion-a-year tax hole from fuel duty.
There have been recent calls for road pricing to be brought in – it’s not that Labour has just pulled it out of thin air.
In a letter to the Chancellor last September, Campaign for Better Transport (CBT) director of policy and campaigns Silviya Barrett issued a plea to Ms Reeves to bring in road pricing, saying EV drivers should ‘fairly contribute towards vehicle taxation’, calling for a ‘simple charge’ based on ‘regular odometer readings’.
Carwow surveyed 1,014 drivers, with half supporting switching away from VED to road pricing because they believe it is a fairer system for all fuel types
Recent studies have found that half of drivers would support pay-per-mile taxation.
Leading car sales platform Carwow surveyed 1,014 drivers, with half supporting switching away from VED to road pricing because they believe it is a fairer system for all fuel types.
Snap polling by YouGov took the temperature of the nation on the day pay-per-mile taxation was leaked and found that 43 per cent of Britons either ‘strongly support’ or ‘somewhat support’ the idea, while 34 per cent either ‘somewhat oppose’ or ‘strongly oppose’ it. Some 23 per cent ‘don’t know’.
However a poll of 4,386 in-market car buyers survyed by new car buying platform What Car? this week found that 52 per cent of people would be deterred from buying an electric vehicle (EV) if a pay-per-mile tax is introduced in the Budget and only 20 per cent thought the new tax would be a good idea.
Worst still more than a third of respondents who were planning to buy an electric car said they would reconsider if a pay-per-mile tax on EVs was introduced.
What Car? consumer editor, Claire Evans, said: ‘Introducing an additional tax on EVs won’t only be unpopular, it will clearly make many drivers who are intending to buy an EV rethink their plans. Coming hot on the heels of the Government’s Electric Car Grant, which stimulated demand for EVs, it sends a terrible mixed message.’
EV drivers living in remote areas hardest will be the hardest hit by pay-per-mile because of their limited access to public transport and reliance on cars. They drive far more miles each year than EV drivers living in cities on average
Those in rural areas and without driveways hardest hit
Drivers living in remote areas hardest will be the hardest hit because of their limited access to public transport and reliance on cars.
In 2021, people in rural areas (villages, hamlets, and isolated dwellings) drove an average of 6,449 miles, while those in urban conurbations averaged 3,661 miles, data from the National Travel Survey found.
Say an EV driver was therefore covering 6,449 miles in the countryside they would have to pay £193.47 in pay-per-mile charges. An EV driver in urban locations driving 3,661 miles would pay £109.83.
Pay-per-mile will also exacerbate the EV driveway ownership imbalance in Britain – 90 per cent of electric car keepers having a driveway at home and access to cheaper charging prices.
Charging on public slow chargers of up to 8kW costs on average 11.3p per mile, almost double that of plugging in at home, leaving those without home chargers paying far more
According to the latest AA Recharge Report for September, the average cost per mile to charge an EV using a domestic tariff is 5.88p per mile.
However, for those without off-road parking facilities, the cheapest option – using a public slow charger offering speeds of up to 8kW – is 11.3p per mile, almost double that of plugging in at home.
EV owners having to use ‘fast chargers’ (9kW to 49kW) pay 13.79p – more than it currently costs to run a petrol (11.82p per mile) or diesel car (10.18p) – and those using ultra-rapid chargers (150kW-plus) are paying 17.63p. This is three times the cost of charging domestically.
Will EV drivers be charged by the mile on holiday?
The 3p per mile levies would most likely apply also on foreign roads, meaning motorists visiting France would pay the new tax on top of ‘péage’ tolls, which exist on French motorways.
This means EV owners will effectively be taxed twice.
On average a 1,530-mile trip from Calais to Nice would cost an extra £45.90.
However, such rules would face huge objection from motoring groups, who state that taxing EV owners for driving their green cars outside of the UK is ‘unfair and a huge flaw’.
Edmund King, president of the AA, told The Telegraph: ‘I can’t really see any practical way around it. It would be pretty bureaucratic to have to check your mileage at Dover and have it stamped on some kind of certificate to say you’re leaving the country for two weeks.
‘There are already concerns about the extra checks at the borders, so I think it would be a nightmare. It seems EV drivers would have to pay double taxation.’
Other Autumn Budget announcements that impact EVs
Incentives
Ms Reeves confirmed that the Electric Car Grant (ECG) – launched in July and gives people up to £3,750 off eligible, new EVs under £37,000 – will be boosted by a further £1.3billion.
This adds to the £650million already pledged to slash EV prices for car buyers.
Additionally, £200million will be injected into the rollout of Britain’s electric car charging network – this joins the £400million already committed at the Government Spending Review in June.
A consultation on Permitted Development Rights is being published look into ways to make it easier and cheaper for people without a off-street parking to charge and Ms Reeves has also said she will commission a report, to wrap up next autumn, which will review the cost of VAT on public charging – currently at 20 per cent compared to the five per cent on domestic electricity – and the impact of energy prices. The report will find out how these can be lowered to help EV owners.
£200million will be injected into the rollout of Britain’s electric car charging network – this joins the £400million already committed at the Government Spending Review in June
Disincentives
Salary sacrifice – a popular scheme where people pay to lease a car through their employer before tax and national insurance contributions – will be reduced.
In other words the amount you’re allowed to ‘sacrifice’ will be capped.
Currently standard NI rates are eight per cent and two per cent for high earners, and exceeding the new cap would be subject to these rates.
Salary sacrifice schemes cost the Government around £4bn a year in missed tax revenue and so the Chancellor wil now cap the amount that can be contributed via salary sacrifice without incurring national insurance (NI) in order to claw back revenue for the Treasury.
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