The Government will impose a pay-per-mile tax on electric vehicle drivers starting in 2028 – adding 3p per mile on top of existing vehicle taxes. Chancellor Rachel Reeves announced the new levy in her 2026 Budget as officials seek to replace lost fuel duty revenue from the growth in electric car sales.
The plans leaked early after the Office for Budget Responsibility accidentally published its forecast ahead of the Chancellor’s statement.
The OBR’s report revealed details of the tax and warned it could reduce EV sales by 440,000 vehicles between 2026 and 2030 due to higher running costs.
“Because all cars contribute to the wear and tear on our roads, I will ensure that drivers are taxed according to how much they drive and not just by the type of car they own by introducing the Electric Vehicle Excise Duty on electric cars,”
Reeves told MPs.
The charge will hit pure EVs at 3p per mile and plug-in hybrids at 1.5p per mile. Both rates will rise annually with inflation starting in 2028-29.
An EV driver covering 8,500 miles annually will pay an extra £255 per year – roughly half what petrol and diesel drivers pay through fuel duty. This comes on top of the £195 annual vehicle excise duty that already applies to EVs.
The Government expects to raise £1.1 billion in 2028-29, climbing to £1.9 billion in 2030-31.
By 2050, when officials project 90% of cars will be electric, the tax could generate £7 billion annually. The OBR estimates this will offset about a quarter of lost fuel duty revenue through 2050.
Support Measures Announced
Reeves also confirmed measures to encourage EV adoption alongside the new charges.
The Expensive Car Supplement threshold for EVs will rise from £40,000 to £50,000. This reflects higher average EV prices compared to petrol and diesel models – many family cars currently face the luxury tax.
The Government extended the Electric Car Grant until 2029-30 with an additional £1.3 billion in funding. Officials also pledged £200 million more for charging infrastructure.
The OBR said these measures should offset around 130,000 of the predicted lost sales from the pay-per-mile tax.
Industry Warns of Mixed Signals
The AA said the Budget leaves drivers “at a fork in the road” and could create uncertainty about the costs and implementation of pay-per-mile charging.
Edmund King, AA president, acknowledged the Government’s balancing act between raising road funding and maintaining the transition to electric cars.
“Getting the timing right is crucial, and there will be concerns that should pay-per-mile for EVs be introduced too soon it may slow down the switch to electric cars,”
King said.
He called for protections for certain groups like carers who use cars for work and rural drivers with greater car dependency.
The Society of Motor Manufacturers and Traders had warned before the announcement that pay-per-mile taxes would cause “severe damage” to the industry.
Mike Hawes, SMMT chief executive, welcomed the expensive car supplement changes and additional grant funding but criticized the timing of the new tax.
“These will help, but will not offset the impact of introducing a new Electric Vehicle Excise Duty – the wrong measure at the wrong time,”
Hawes said.
Tanya Sinclair, CEO of Electric Vehicles UK, said the Budget sends conflicting messages that could hurt market confidence.
“On the one hand, funding for EV grants and chargers are welcome. But on the other, the number of EVs using those chargers will grow more slowly with the proposed pay-per-mile charges,”
she said.
Sinclair emphasized the need for careful design, proper consultation and transparent explanation of any pay-per-mile scheme.
John Lewis, CEO of char.gy, called road tax reform “inevitable” but warned against introducing usage-based costs too early for drivers who rely on public charging.
Vicky Edmonds from EVA England said it’s “completely the wrong time” to tax EV drivers despite welcoming other Budget measures.
“A pay-per-mile scheme in two years is unnecessarily rocking the boat at such a pivotal point for the market,”
Edmonds noted.
The Chartered Institute of Logistics and Transport stressed that any pay-per-mile system should replace existing VED and fuel duty arrangements as part of a comprehensive strategy.
“A pay-per-mile charge for EVs is a logical step as fuel duty revenues decrease, but it is not a strategy on its own,”
said Daniel Parker-Klein, the institute’s policy director.
