The UK government will implement a new pay-per-mile road tax on both electric vehicles (EVs) and plug-in hybrid vehicles (PHEVs) starting in April 2028, Chancellor Rachel Reeves announced Wednesday as part of the Autumn Budget. The move is designed to offset declining revenue from traditional fuel duties as drivers shift to electric cars.
Tax Rates and Revenue Projections
The new levy, dubbed “eVED” by the Office for Budget Responsibility (OBR), will charge EV drivers 3p per mile and PHEV drivers 1.5p per mile. The government projects this will generate £1.1 billion in tax revenue by the 2028-29 fiscal year, rising to £1.9 billion by 2030-31.
Impact on EV Demand and Sales Mandates
The OBR warns that the new tax could discourage EV adoption, potentially reducing sales by 440,000 units through March 2031. This is despite the government’s increased Electric Car Grant (ECG), which is now projected to boost sales by 320,000, a figure revised upwards from an earlier estimate of 130,000.
The OBR also notes that reduced EV demand due to the tax may make it harder for automakers to meet the government’s Zero Emission Vehicle (ZEV) mandate. This mandate requires EV sales to reach 28% this year, increasing to 80% by 2030. To comply, manufacturers may need to lower EV prices or reduce sales of non-electric vehicles.
Justification and Road Maintenance Funding
Reeves defended the tax, stating that all vehicles contribute to road wear and tear and that drivers should be taxed based on usage rather than vehicle type. She claimed the new tax would “double” the road maintenance fund in England during the current parliamentary term.
The government’s rationale is straightforward: as fossil fuel taxes decline, a new revenue stream is needed to maintain road infrastructure. This shift acknowledges that EVs, while cleaner in terms of emissions, still contribute to physical road damage.
The introduction of eVED marks a significant policy shift, signaling a broader effort to ensure sustainable funding for road maintenance in a rapidly evolving automotive landscape. The move is likely to spark debate among automakers, environmental groups, and consumers, as it directly impacts the financial viability of EV ownership.
