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What the Chancellor’s 3p-a-mile plan means for EV drivers – plus Electric Car Grant and Expensive Car Supplement changes explained
The Independent’s Electric Vehicle Channel is sponsored by E.ON Next.
Chancellor Rachel Reeves has confirmed a new Electric Vehicle Excise Duty scheme with battery electric car owners paying three pence per mile in addition to the standard rates of Vehicle Excise Duty, while owners of plug-in hybrid cars will pay 1.5 pence per mile. The new scheme is expected to come into effect in April 2028.
According to the OBR it could raise as much as £1.4bn, helping to plug the gap left by falling fuel-duty receipts.
Announcing the new scheme in the commons, Rachel Reeves said, “Because all cars contribute to the wear and tear on our roads, I will ensure that drivers are taxed according to how much they drive, and not just by the type of car they own.
“By introducing the Electric Vehicle Excise Duty on electric cars, this will be payable each year alongside vehicle excise duty at 3p per mile per electric car and 1.5p for plugin hybrids, helping us to double road maintenance funding in England over the course of this parliament.”
The drop in revenue should not come as a surprise to anyone. We drive far fewer miles than we used to, down from 9,000 miles a year on average twenty years ago to 7.100 today. Back in 2005 petrol car drivers drove 8,100 miles a year on average and diesel drivers 12,900 miles a year. Now that’s 6,200 and 8,300 miles. It doesn’t need a mathematician – or a Chancellor of the Exchequer – to work out that’s one of the biggest reasons revenues from fuel has dropped, not just the shift to EVs.
There’s no confirmation yet on how the new EV Excise Duty scheme will work, but it’s likely to rely on us recording and submitting our own mileage to the DVLA rather than any form of digital scheme that would make charging seamless.
Under the plan, BEV drivers would be asked to estimate their annual mileage and pay an upfront levy of 3p per mile, called Electric Vehicle Excise Duty, in addition to the current Vehicle Excise Duty which currently stands at £10 for the first year and £195 thereafter.
Using that figure, the Treasury estimates the average EV driver – travelling some 8,900 miles a year – could pay around £279 a year from 2028.
Crucially, the system is intended to avoid real-time tracking of vehicles. Instead, the idea is that drivers estimate how far they will drive and pay the 3p/mile in advance. If they drive fewer miles the balance rolls over; if they exceed the estimate they pay more.
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The logic is clear: revenue from fuel duty is falling as drivers drive fewer miles and increasingly switch from petrol and diesel to electric vehicles.
The Treasury projects the fuel-duty shortfall could reach as much as £12 billion annually by 2040. Simply hiking fuel duty further is considered politically tricky, especially with recent freezes in place.
In short, the Government is seeking a fairer way to tax motoring that reflects usage rather than fuel burnt, recognising BEVs still use the roads and infrastructure.
The trigger date is 2028 .
The government has confirmed a rate 3p per mile for pure BEVs, with plug-in hybrids paying 1.5p per mile. Full hybrid models are not affected, but – as with plug-in hybrids – will still be liable for duty on petrol, plus VED (Vehicle Excise Duty).
It remains unclear exactly how commercial users (vans, haulage) will be treated.
Pay-per-mile taxation replaces the “fossil-fuel tax” model with one tied to distance travelled, arguably fairer meaning drivers who use the roads more pay more.
The proposals also keep the transition to EVs moving by retaining taxation of road use, rather than giving BEVs a free ride forever.
Most of all, it would help protect the public purse from long-term shortfalls in motor-tax revenue.
From manufacturers to campaign groups and everyday drivers, concerns are strong.
Matt Galvin, managing director of Polestar UK, said, “It is farcical that fuel duty on cars burning petrol or diesel, contributing to respiratory diseases, has not been raised since 2011. This is clearly a confused message from the Government, on one hand recently incentivising the move to zero-emission driving and on the other planning to take this away with tax rises.”
A spokesperson for car industry trade body SMMT said, “Introducing such a complex, costly regime that targets the very vehicles manufacturers are challenged to sell would be a strategic mistake. A smarter, fair and future-ready taxation system requires a fundamental rethink.”
Tanya Sinclair, CEO of Electric Vehicles UK, said, “Today’s Budget sends mixed signals, which will impact market confidence. On the one hand, funding for EV grants and chargers are welcome. But on the other, the number of EVs using those chargers will grow more slowly with the proposed pay-per-mile charges for EVs. With the government failing to be joined up and consistent, it is affecting hitherto healthy market confidence and growth. These measures together do not give drivers a consistent signpost that it supports cleaner road transport, cleaner driving choices and cleaner local air quality.”
Critics argue the timing is wrong – by introducing extra costs for EV users while the country still needs to accelerate uptake could undermine the net-zero agenda.
Another common concern is with rural drivers who dependent on their car for essential trips and may face a disproportionate impact.
Self-reported mileage also raises enforcement and fairness questions. One driver wrote: “As an EV owner I live in the country and have little or no access to public transportation. Why should I have to pay for the additional distance to access shops and other local services?”
In addition to the Electric Vehicle Excise Duty announcement, Rachel Reeves announced extra funding for the Electric Car Grant, saying, “We are providing £1.3bn pounds additional funding for the Electric Car Grant, extending it to 2030, and taking total funding to £2bn pounds.”
The Electric Car Grant offers a discount of either £1,500 or £3,750 on new electric cars if they meet either of two levels of stringent Science Based Targets. Currently only four cars are eligible for the Band One discount of £3,750 – the Citroën ë-C5 Aircross Long Range, Ford E-Tourneo Courier, Ford Puma Gen-E and Nissan LEAF – while 37 models get the Band Two £1,500 discount.
Rachel Reeves also confirmed delays to the much-criticised changes to Employee Car Ownership Schemes that allow car company employees to benefit from cheaper cars, providing an employment incentive and a flow of nearly-new cars onto the used market.
The Expensive Car Supplement – an additional VED payment of £425 from the second year of ownership – has been tweaked to now apply to cars that cost over £50,000 rather than £40,000, with the Chancellor saying, “I am providing support to boost our British car industry, increasing the threshold for the expensive car supplement on electric vehicles to £50,000, saving over a million motorists £440 a year.”
Search and Rescue vehicles will also now be exempt from Vehicle Excise Duty.
Finally, financial support for public charging points has also been increased. “We’re investing a further £200m to accelerate the rollout of EV charging, as well as 100% business rates relief for EV charge points for the next decade,” said Reeves. However, there was no sign of an equalisation of VAT between home EV charging at five per cent and public charging at 20 per cent.
Electric vehicle drivers should stay alert. The Budget is coming. The consultations will start. And for many, the simple promise of “lower running-cost motoring” could soon come with an increase in EV drivers’ bills.
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