The chancellor has confirmed a new pay per mile tax on electric vehicles in her annual budget statement.
Rachel Reeves told a rowdy House of Commons chamber that she was introducing the change “because all cars contribute to the wear and tear on our roads” and that the measure was intended to “ensure that drivers are taxed according to how much they drive and not just the car they own”.
She confirmed that the new so-called Electric Vehicle Excise Duty will be payable at the same time as standard VED at a cost of 3p per mile for electric cars and 1.5p per mile for PHEVs. She said the measure would help the government to “double road maintenance funding in England over the course of this parliament”
According to estimates by the Office for Budget Responsibility, the pay per mile tax on electric vehicles is forecast to bring in £1.1bn in the 2028/29 financial year, rising to £1.9bn in 2030. This is against an estimated £25bn that fuel duty brings in each year. The chancellor announced that the fuel duty freeze would continue in place for another three years, a move that is forecast to cost £900m a year in lost tax income.
The chancellor also announced that the Expensive Car Supplement threshold will be increased to £50,000. The current threshold sits at £40,000, and if you buy a new car that’s priced higher than that you have to pay £425 a year extra on your annual VED bill for five years from the second year of car ownership. The scheme had been criticised because a significant number of EVs sat over the £40k threshold.
The previously trailed announcement of £1.3bn for the plug-in car grant and a 12-month extension to 2030 was also confirmed in the chancellor’s budget statement, as well as a £200m fund from the government for EV charging as well as a business rates relief measure for businesses installing charge points.
Electrifying.com founder Ginny Buckley has criticised the mixed messages in the government's approach. "Upping the ‘Luxury Car Tax’ threshold to £50,000 is a welcome, overdue fix to a frankly daft policy that was penalising family electric cars. But paired with a looming pay-per-mile charge, it reinforces the government's confused policy when it comes to the EV transition – a token giveaway with one hand, while quietly clawing it back with the other. Mixed messages like this don’t speed up the switch – they stall it.”
Mixed messages from the government on electric vehicles are going to confuse buyers, says Electrifying.com founder Ginny Buckley 
