Electric vehicles will be subject to a mileage-based charge from April 2028 in a move that’s been slammed by the motoring industry as ‘confusing’.
In order to raise a predicted £1.9billion for the Government’s coffers by 2030, the Chancellor used her 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 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 motoring taxes including fuel duty.
Ms Reeves told Parliament today: ‘All cars contribute to wear and tear on our roads, so it is only right that our motoring taxes cover EVs via a modest per mile levy, with extra support to keep EV ownership attractive.’
The OBR predicts that the move will ‘reduce demand for electric cars as it increases their lifetime cost’, with an estimated 440,000 fewer EV sales across the next five years. However, this is expected to be offset by a forecast 130,000 increase in EV sales due to EV budget incentives like an rise in the Expensive Car Supplement from £40,000 to £50,000.
Pay-per-mile will see EV owners having to pay a so-called ‘modest’ 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 vehicles (PHEVs) – which have small batteries and are capable of covering up to 90 miles on electric-only models – will also be subject to a 1.5p per mile charge. Both rates will rise annually in line with CPI.
Daily Mail and This is Money has spoken to five EV drivers to see how it will impact their finances…
The Office for Budget Responsibility (OBR) has confirmed that electric vehicles will be subject to a mileage-based charge from April 2028 – a 3p per mile tax
What is pay-per-mile and how will it work?
Pay-per-mile is a road pricing system that levies a fee for each mile driven.
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 OBR states that average driver of a battery electric car in 2028-29 driving 8,500 miles is therefore expected to be charged £255 in this year. This is roughly equivalent to half the rate of fuel duty tax paid per mile by drivers of petrol and diesel vehicles.
The revenue will go towards maintaining the UK’s roads and infrastructure in the same way fuel duty does.
The OBR has said that the ‘introduction of the new mileage-based charge on electric cars will offset around one-quarter of the 0.6 per cent of GDP in revenue set to be lost from fuel duty by 2050 due to the transition to electric vehicles’.
Instead of bringing in an invasive system where black boxes are fitted that track vehicle mileage, the Treasury has confirmed that EV drivers will ‘self-report’ their 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.
The Office for Budget Responsibility (OBR) has said that the ‘introduction of the new mileage-based charge on electric cars will offset around one-quarter of the 0.6 per cent of GDP in revenue set to be lost from fuel duty by 2050 due to the transition to electric vehicles’
Howard Cox, Founder of FairFuelUK.com said: ‘Rachel Reeves’s 3p Pay per mile on EVs is I fear the thin end of the wedge to make all vehicles, whatever their type of fuel, pay tax as they drive.
‘Whilst Fuel Duty and VAT continues to deliver billions to the Exchequer, both types of taxation cannot work alongside each other. It’s time Government listens to and consults drivers as to developing a long term road user tax plan that’s fair to UK’s 37m drivers and the economy.’
The Energy and Climate Intelligence Unit’s (ECIU) analysis has found that despite the 3p charge EVs will still remain cheaper to run than petrol cars.
Yet its Head of Transport, Colin Walker, warns that people could still ‘stick to dirtier and more expensive petrol cars for longer’.
Edmund King, AA president, says the Budget has ‘put drivers at a fork in the road’ and that while drivers ‘fully understand’ the need for raising money for our roads, it can’t slow down the EV transition.
He says: ‘Getting the timing right is crucial, and there will be concerns that should pay-per-mile for EVs be introduced too soon it may put slow down the switch to electric cars.’
Simon Williams, head of policy at the RAC, says the Government ‘expanding the Electric Car Grant’ shows it is fully aware that pay-per-mile will ‘slow down the transition to electric vehicles’.
He also notes that the Government hasn’t cut VAT on public charging as expected from 20 per cent to five per cent so drivers unable to charge at home are still at a disadvantage.
Steve Gooding, director of the RAC Foundation, commented: ‘By our calculations a 3p per mile charge for EVs is still likely to leave a gap from the annual revenue Chancellors have come to bank on from fuel duty, which means its unsurprising that in parallel the Treasury has looked to increasing the level of fuel duty as a way to cover a shortfall that could otherwise be as much as £2billion per annum by the end of the decade.’
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, answers: ‘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.’
Marvin 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 Samuels – 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 Comerford – 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?
‘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’s EV has covered a staggering 293,000 miles and he says pay-per-mile will cost him an extra £600 a year
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 pay-per-mile 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.
For PHEV drivers, this would be £105.81.
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 – PHEV drivers £6.
Driving 102 miles from Cambridge to Oxford would cost £3 (£1.50 for PHEVs), while the 73-mile journey from Liverpool to Leeds will be £2 (£1 for PHEVs).
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.
Is pay-per-mile taxation fair?
Ministers are framing road pricing as a measure of fairness because petrol car drivers 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 politically toxic by the previous administration that the recommendations to bring it in where shunned.
The committee 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’.
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
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.
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
Some 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 survey of 4,386 in-market car buyers surveyed 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.
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.’
What’s halted pay-per-mile tax from being introduced before now?
Pay-per-mile charges will be calculated based on self-reported mileage estimated by drivers.
If less miles are covered than estimated, the money surplus will roll over to the next year. However, if the EV owner exceeds their quoted mileage, they will need to pay the additional amount.
When and how they provide this information to the Government remains unknown for now.
However, there are some examples of road pricing already being in place across the globe – notably in New Zealand.
Drivers there pay a road user charge (RUC) – every vehicle needs a ‘distance licence’.
Motorists pre-pay for the distance they’re going to travel, in units of 1,000km, and there are different rates for different vehicle types.
Battery electric vehicles, plug-in hybrid vehicles and hybrid vehicles all pay a charge as well as fuel cars; these range from $76 per 1,000km (£36) for BEVs down to $38 per 1,000km for plug-in hybrid petrol cars (£18).
It is most likely that Britain would follow a similar system to avoid the biggest hurdle that’s prevent road pricing’s introduction before now.
Many have proposed for mileage to be monitored by black boxes fitted to every car to accurately determine how to charge motorists by the mile.
However, this has proved immensely unpopular amid concerns of driver’s being tracked and monitored, potentially resulting in privacy issues as well as increasing opportunity to fine motorists for offences – such as speeding – that the black box telematic devices could identify.
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