Chancellor Rachel Reeves used the Autumn Budget 2025 to say tax-free electric car use is ending. As more people switch to electric vehicles, the government is moving to fix the money issue caused by less fuel tax income, which is now about £25 billion each year.
Starting in April 2028, electric and plug-in hybrid cars will be taxed based on how far they drive. This is expected to bring in £1.4 billion each year by 2029-30.
1. How Pay-Per-Mile Will Work
Instead of using GPS tracking, the system will use a simple, administrative way to protect privacy while making sure they get money.
The Rates
The tax is different based on the car's engine:
Battery Electric Vehicles (BEVs): Charged at 3 pence per mile.
Plug-in Hybrid Electric Vehicles (PHEVs): Charged at 1.5 pence per mile.
Commercial Vehicles: Electric vans, buses, and large trucks won't have to pay this mileage charge for now.
These rates will change each year with the Consumer Price Index (CPI) starting in 2029.
The System: eVED
The system will be a new type of Vehicle Excise Duty (VED), called eVED.
No Trackers: The government said there won't be any need for tracking devices.
Self-Reporting & MOTs: Drivers will guess how many miles they'll drive each year and pay the tax early (like how VED works now).
Checking: At the end of the year, the actual miles driven will be checked, probably during the yearly MOT test. If a driver drove less than they guessed, the extra money will be saved for next year. If they drove more, they'll pay the extra amount.
2. How It Affects Drivers' Finances
The main question for EV owners is if they can afford it. The government says that even with this new cost, EVs are still cheaper to run than gasoline cars.
Average Cost: For an average EV driver who drives 8,500 miles a year, this new tax will add about £255 to their yearly costs.
Compared to Gasoline: The Office for Budget Responsibility (OBR) says this 3p per mile charge is about half the fuel tax paid by gasoline drivers, which is about 6p per mile.
Other Costs: This mileage tax is on top of the normal VED (road tax), which is £195 per year for EVs after the first year.
Changes to the Luxury Car Tax
To make things a bit easier, the Chancellor also changed the Expensive Car Supplement. The price limit for this extra charge has been raised from £40,000 to £50,000 for electric vehicles. This means fewer mid-range EVs (like a Tesla Model Y or a good Kia EV6) will have to pay the extra £425 each year, possibly saving owners money despite the new mileage tax.
3. How It Affects the Market
The car industry and market experts have different opinions about this news. Most people agree that EVs should help pay for road upkeep, but they're worried about when and how this is being done.
Expected Sales Drop
The Office for Budget Responsibility (OBR) said that:
The new tax is expected to cause a drop in EV sales of about 24,000 cars each year for the next five years.
By making it more expensive to own an EV, this reduces the main reason people switch to electric—lower running costs.
Industry Opinion: Bad Move
Car industry leaders have said the government is sending mixed signals.
Conflicting Rules: The government is requiring that 52% of new car sales must be electric by 2028 (the ZEV Mandate). But they're also adding taxes that make people not want to buy them.
Market Confidence: Big companies like Ford and groups like the SMMT have warned that adding costs when demand is already weak could stop the move to Net Zero.
The Used EV Market
The pay-per-mile tax makes things tricky for the used car market.
Resale Value: The mileage-based tax stays with the car's history. When a car is sold, any paid mileage stays with the car, but any unpaid tax would need to be paid, which could make private sales harder.
High-Mileage Drivers: This tax will really affect people who drive a lot (like commuters or delivery drivers). These people, who used to save the most money on EV fuel costs, will see the biggest cost increase, possibly making them switch back to hybrids or keep their old gasoline cars longer.
4. Conclusion
The 2025 Budget is a big change for the UK car market. The pay-per-mile plan is a practical way to deal with the loss of fuel tax money. But by starting it in 2028, the government might slow down the move to electric cars when it needs to speed up.
For the average person, cheap electric car use is coming to an end. While EVs are still cheaper to fuel than gasoline cars, the cost difference is getting smaller, changing the reason to buy from saving money to being environmentally friendly.
0 Comments