UK Budget's £1.4 Billion EV Mileage Tax Will Hit Demand, Watchdog Warns

Britain’s electric and plug-in hybrid vehicle owners will be subject to a pay-per-mile tax, under UK budget measures tipped to dent demand at a time when carmakers must meet an EV sales mandate.

The move, from April 2028, will raise £1.4 billion ($1.8 billion) a year by the end of the decade, according to a document published early by the Office for Budget Responsibility. EV owners will pay a charge of 3 pence per mile, while plug-in hybrid car drivers will pay 1.5 pence per mile.

The watchdog estimated the change will lead to 440,000 fewer electric car sales in the coming years.

Chancellor of the Exchequer Rachel Reeves is seeking to shore up the country’s finances and fill a void left by waning fuel duty in future years from lower combustion-engine vehicle sales. The levy on fuel was frozen for another year.

The new tax is a blow for carmakers already pushing for the UK to make buying an EV more attractive at a time when they’re being forced to sell more of them. While manufacturers face hefty fines for not meeting a government sales mandate, the policy was watered down earlier this year to give companies more leeway.

“Introducing such a system at this stage risks putting off drivers who are considering making the switch to electric by layering on new costs,” said Delvin Lane, chief executive officer of charging company InstaVolt Ltd.

“Rather than road pricing for EVs, we need to see measures that stimulate consumer demand, so we can deliver the tax revenues, jobs, investment, productivity and growth that is in everyone’s interests,” Mike Hawes, chief executive officer of the Society of Motor Manufacturers and Traders, said ahead of the anticipated change.

The average driver of a fully electric car who drives 8,500 miles a year is expected to pay £255 in 2028-2029, the OBR said.

More than a quarter of the UK’s new-car sales were fully electric in October, SMMT data show. That’s a higher share than in the European Union, where they accounted for 19% of registrations last month. Consumers are being convinced to go electric in part because carmakers have been introducing more affordable models.

In addition to the pay-per-mile tax, the government also extended the car grant by £1.3 billion and promised an extra £200 million for charging points.