Rachel Reeves is considering using this month’s budget to announce plans for a pay-per-mile tax for electric vehicles worth an extra £250 a year on average.
The proposals could mean EV drivers pay a charge of 3p a mile on top of other road taxes to offset falling revenue from petrol and diesel cars as drivers switch to greener options.
A government spokesperson said: “Fuel duty covers petrol and diesel, but there’s no equivalent for electric vehicles. We want a fairer system for all drivers.”
The chancellor is expected to argue that the new levy would be fairer, as drivers of petrol or diesel cars currently pay on average £600 a year in fuel duty (EV owners joined them in paying road tax in April this year).
The extra revenue would also help Reeves plug a financial hole of between £20bn and £30bn by the end of the parliament.
The scheme would start in 2028 after a consultation, according to the Daily Telegraph, which first reported on the proposal. By that time about 4 million people are expected to be driving electric cars or vans, according to the Society of Motor Manufacturers and Traders (SMMT).
The trade body criticised the idea of a pay-per-mile scheme. “We recognise the need for a new approach to motoring taxes but at such a pivotal moment in the UK’s EV transition, this would be entirely the wrong measure at the wrong time,” the SMMT said. “A smarter, fair and future-ready taxation system requires a fundamental rethink – one that must done in full partnership with the industry.”
Jon Lawes, the managing director at the fleet leasing firm Novuna Vehicle Solutions, was also critical. “A fair tax system is important, but the cost of EVs and charging availability remain major barriers.” He called on the government to prioritise faster rollout of public chargers to reach the 300,000 target by 2030, extend grants to more models and introduce incentives for used electric cars, and electric vans.
Last year, the Campaign for Better Transport urged Reeves to introduce a pay-per-mile road charging scheme to fill the growing revenue gap from the move away from combustion engine cars. The Tony Blair Institute also advised at the time that Reeves should introduce a simple road pricing system of 1p a mile for cars and vans and 2.5p to 4p for lorries and heavy goods vehicles.
Analysis by the Energy and Climate Intelligence Unit shows that even with a 3p-a-mile tax, EVs would still be £1,000 a year cheaper to run than petrol cars.
The unit’s head of transport, Colin Walker, said: “But this announcement comes shortly after the government gave in to industry lobbying by weakening its EV sales targets. This could enable industry to push more hybrids on drivers that burn five times more fuel than their manufacturers claim, and cost hundreds of pounds more a year to run than EVs.”
The government spokesperson said £4bn had been invested in support of the transition to electric vehicles, including grants to cut upfront costs by up to £3,750 for each 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,” they added.
