Drivers of electric vehicles are to be hit with a new pay-per-mile tax that will cost an average of more than £250 a year.
The details emerged in the Office for Budget Responsibility’s leaked analysis of Chancellor Rachel Reeves’ Budget.
The new levy will cost 3p per mile for battery electric cars and 1.5p per mile for plug-in hybrids, which combine a conventional engine with a top-up battery.
The pay-per-mile charge will be introduced in April 2028 and will increase annually in line with inflation, according to the OBR documents.
It will be in addition to vehicle excise duty on all vehicles that is paid annually.
The OBR documents state: “The Government has announced changes to the taxation of and subsidies for electric vehicles (EVs).
“The most significant is the introduction of a new mileage-based charge on electric cars… which will be introduced in April 2028.
“In 2028-29, the charge will equal £0.03 per mile for battery electric cars and £0.015 per mile for plug-in hybrid cars, with the rate per mile increasing annually with CPI.
“The average driver of a battery electric car in 2028-29 driving 8,500 miles is therefore expected to be charged £255 in this year.
“This is roughly equivalent to half the rate of fuel duty tax paid per mile by drivers of petrol and diesel vehicles.”
According to the OBR, the charge is expected to raise £1.1bn in 2028-29, rising to £1.9 billion in 2030-31.
However, it is “likely to reduce demand for electric cars as it increases their lifetime cost” – contrary to Government ambitions to encourage the take-up of electric vehicles.
The OBR expects the EV pay-per-mile tax to result in 440,000 fewer EV car sales than expected.
But in reality there may just be 120,000 fewer, because of the impact of Government incentives that were also in the Budget.
However, many see it as the latest blow to electric vehicle drivers.
Last month, London mayor Sir Sadiq Khan announced that drivers of electric vehicles would lose their 100 per cent discount on the central London congestion charge.
The introduction of the pay-per-mile system from EVs came as a continued freeze in fuel duty on petrol and diesel was confirmed.
Edmund King, president of the AA motoring organisation, said; "The Budget has put drivers at a fork in the road with the Chancellor announcing major tax proposals for EV owners.
“We recognise that fuel-duty revenue is declining as drivers switch to electric vehicles. There will be concerns that should pay-per-mile for EVs be introduced too soon it may put slow down the switch to electric cars.”
RAC head of policy Simon Williams said: “The Government will be aware that taxing all plug-in vehicles per mile from 2028 could slow down the transition to electric vehicles. This is no doubt why it has expanded the Electric Car Grant.
“With fuel duty revenue set to decline as more EVs come on to the road, this is one lever the Chancellor clearly feels she can pull to keep the money coming in. The implementation will be critical, so the devil is very much in the details.
“We note the Government hasn’t cut VAT on public charging from 20% to 5% to match the rate levied on domestic electricity. This means drivers who can’t charge at home will continue to pay more."
However, Izzy Romilly, sustainable transport manager at climate charity Possible, said: “The principle of pay-per-mile is a good one, and it’s positive to see it firmly on the table. The right model could be significantly fairer than the system we have now, while helping plug the tens of billions that will be lost as fuel duty revenue declines.
“But, we need to strike the balance carefully. Electric vehicles must keep a clear cost advantage to encourage people to switch – but we also need to avoid the surge in traffic that could come from driving getting cheaper than public transport over years to come.”
Last week, Sir Sadiq repeated his promise not to introduce a pay-per-mile system in London to replace the Ulez and congestion charge and suggested he would “fight” a national pay-per-mile system.
Emma Best, A Tory member of the London Assembly, said: “It’s time for rubber to hit the road with Sadiq Khan - let’s see some action.
“He promised me just last week, after years of insisting that pay-per-mile wasn’t coming to London, that he would fight it every step of the way if the Chancellor announced it.”
Ian Plummer, chief commercial officer at Autotrader, said the Chancellor was “driving with the handbrake on” in relation to electric vehicles.
He said: “The Office for Budget Responsibility estimates that there will be 440,000 fewer electric cars on the road [than expected] thanks to the introduction of pay-per-mile charging from 2028.
“This sends completely the wrong signal as only 130,000 of these sales are offset by moves to make EVs more affordable, such as raising the Expensive Car Supplement from £40,000 to £50,000.
“In the OBR’s own words, this new charge is likely to reduce demand for electric cars as it increases their lifetime cost. Does she want people to buy electric cars or not?”
