Electric vehicle (EV) owners in the UK may be required to pay an additional road tax under new Budget plans set to be announced later this month.
According to The Telegraph, Chancellor Rachel Reeves is considering a new pay-per-mile tax that will be applied to EVs, which could cost motorists up to £250 extra a year.
The move reportedly comes as the Treasury attempts to boost falling fuel duty revenue, with drivers increasingly switching from fuel to electric cars.
As it stands, people who own petrol and diesel vehicles pay a tax when they buy fuel, whereas electric vehicle owners have been able to avoid such fees.
Under the new proposals, it has been reported that drivers of electric vehicles will face a levy of up to 3p per mile under the new plan, alongside other road taxes, while hybrid cars will also face a reduced rate.
The tax, expected to be implemented after 2028, could help the government raise an additional £1.8 billion by 2031, reports claim.
A government spokesperson told The Standard: “Fuel duty covers petrol and diesel, but there’s no equivalent for electric vehicles. We want a fairer system for all drivers whilst backing the transition to electric vehicles, which is why we have invested £4 billion in support, including grants to cut upfront costs by up to £3,750 per eligible vehicle.
“Just as it is right to seek a tax system that fairly funds roads, infrastructure and public services, we will look at further support measures to make owning electric vehicles more convenient and more affordable."
However, the news has raised several additional questions about how the plan will be implemented and it’s impact on drivers.
There are also some concerns among businesses operating within the EV space.
Chris Pawsey, founder of Everything Green Energy, which installs EV charging systems and solar panels, told The Standard: “My fear is that it will reduce viability and uptake of EVs. They could raise more tax with a 2% increase on diesel and petrol. In the long term I think this is inevitable as traditional fuels phase out.”
So what does this all really mean for motorists?
What’s the current fuel levy?
According to the Office for Budget Responsibility, standard petrol and diesel taxes are currently 52.95p per litre, and it’s something that people pay at the petrol pump on top of VAT.
As it stands, it’s one of the most significant tax generators in the country, with the OBR adding that existing tax rates could raise around £24.4 billion from 2025 to 2026.
But as motorists shift further toward electric vehicles, especially ahead of a 2030 ban on petrol and diesel vehicles, the government faced the challenge of reconciling what the tax consultancy RSM claims is a “black hole in treasury coffers.”
Declining fuel revenues aren’t just a problem in the UK, prompting governments to explore alternative ways to tax car users.
It’s long been anticipated that the government would explore ways to levy EVs to make the roads ‘fairer’, with politicians also considering tax systems that may apply to all vehicles on UK roads.
How will the EV tax work?
Unless an EV is a hybrid model, these vehicles rely solely on electric battery power and are considered more environmentally friendly than gas-guzzling cars.
For a long time, EV owners were able to enjoy reduced tax rates, paying only for things such as a tax on electricity.
However, incentives and tax breaks previously used to encourage people to purchase electric vehicles have undergone several changes recently.
EVs registered after April 2025 are now required to pay road tax (officially known as Vehicle Excise Duty), as they’re no longer exempt from paying the fees. In the first year, this amounts to £10, increasing to £195 in the second year.
There are some other taxes already in action, such as for EVs costing over £40,000, but generally speaking, EVs still benefit from paying less taxes than fuel-powered cars.
The new planned EV tax is expected to be applied on top of the existing taxes, and will amount to 3p per mile, which the Telegraph pointed out is around £12 for driving from Edinburgh to London.
To address concerns about tracking, the report states that EV drivers will be required to submit an estimate of the number of miles they drive annually and pay the tax upfront.
Taxes against miles that aren’t used will carry over to the following year, whereas those who drive extra will need to increase their payment.
Hybrid cars will also be required to pay a new levy, but it’ll be at a lower rate.
