UK to Introduce Pay-Per-Mile Tax for Electric Vehicles
British motorists driving electric vehicles (EVs) and plug-in hybrids are facing a new charge based on mileage, a policy confirmed by Chancellor Rachel Reeves. The tax, set to take effect in April 2028, aims to address the declining revenue from fuel duty as more drivers transition to electric cars.
Under the new system, EV drivers will pay 3 pence per mile travelled, while those driving plug-in hybrids will be charged 1.5 pence per mile. The rates are scheduled to increase annually in line with inflation. For a driver covering the average UK mileage of 8,500 miles per year, the annual cost for an EV is estimated at £255. A driver completing 10,000 miles annually would face a charge of £300.
The introduction of the charge comes as the UK prepares for a ban on the sale of new petrol and diesel cars from 2030. The government argues that the pay-per-mile system will create a fairer system for all road users, as current fuel duty revenues are solely derived from petrol and diesel vehicles. Treasury minister Dan Tomlinson stated that the new tax will ensure “all car drivers contribute,” while still incentivizing the switch to electric vehicles.
The policy has sparked debate, with concerns raised about the potential impact on those who rely on their vehicles for long commutes or live in rural areas. Critics argue that the tax could disproportionately affect lower-income drivers and those who cannot easily switch to public transport. However, ministers maintain that the system mirrors the way petrol and diesel drivers are currently charged through fuel costs and duty.
The new tax is expected to generate significant revenue for the government. The Office for Budget Responsibility (OBR) projects that the scheme will raise £1.1 billion in the 2028-29 financial year, increasing to £1.9 billion by 2030-31. This revenue will help offset the loss of income from fuel duty as EV adoption continues to rise.
The pay-per-mile charge will be integrated into the existing Vehicle Excise Duty (VED) system, administered by the Driver and Vehicle Licensing Agency (DVLA). Mileage will be checked annually, typically during a vehicle’s MOT test, or around the first and second registration anniversaries for newer cars. The government has acknowledged concerns about potential odometer tampering (“clocking”) and is consulting on ways to mitigate this risk.
This move follows the introduction of Vehicle Excise Duty (VED) payments for EVs for the first time on April 1, 2025. New cars are subject to a £10 first-year payment, rising to the standard rate of £195 in subsequent years. EVs registered between April 2017 and March 2025 also pay £195 from the start. EVs costing more than £40,000 were subject to a “luxury car tax” of £425 per year, a threshold that will increase to £50,000 in April 2026.
The government is keen to emphasize that the new system will not involve the use of tracking devices in vehicles, nor will it require drivers to navigate a new tax system. Mileage will be reported alongside existing road tax payments. The consultation document released by the Treasury states that the system will maintain “important incentives to switch to an electric vehicle.”
The introduction of the pay-per-mile charge is part of a broader government support package for electric vehicles, totaling £3.6 billion. This package aims to balance the need for sustainable funding with the continued promotion of EV adoption. The government also notes that electric car salary sacrifice schemes remain protected until 2030, offering potential savings for employees who choose EVs through their employers.
While the pay-per-mile tax represents a significant shift in how road usage is funded in the UK, the government maintains that it is a necessary step to ensure a sustainable and equitable system for all drivers in the transition to a zero-emission future. The consultation period is ongoing and further details on the implementation of the scheme are expected in the coming months.
