The UK government’s new pay-per-mile tax on electric cars will also include plug-in hybrid cars, chancellor Rachel Reeves announced in long-awaited autumn budget on Wednesday. 
The news was originally revealed within documents released in error by the Office for Budget Responsibility (OBR) ahead of Westminster’s announcement.
Those documents also confirmed a plan by the government to end the 5p freeze on fuel duty, which will therefore increase for the first time since 2010, while also bringing in changes to luxury car tax, extra cash for the electric car grant (ECG), and much more.
The new pay-per-mile tax is being brough in as part of an effort to claw back lost revenue from the duty imposed on petrol and diesel as motorists transition away from ICE vehicles.
The levy is set at 3p per mile driven in an EV and 1.5p per mile driven in a PHEV. This will come into effect from April 2028.
The OBR forecasts the Treasury will thereby raise £1.1 billion in the 2028-29 tax year, raising to £1.9bn by 2030-31.
However, “the new charge is likely to reduce demand for electric cars, as it increases their lifetime cost”, said the OBR.
It also forecasts that the new tax will preclude some 440,000 EV sales between now and March 2031.
This will be ameliorated, however, by 130,000 of increased sales as a result of the government’s Electric Car Grant, which was announced this July. 
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The OBR warned that the decrease in demand resulting from the new road tax will make it harder for car makers to satisfy the government’s ZEV mandate. This requires an EV sales mix of 28% this year, rising to 80% by 2030. 
As such, it notes that “to meet the mandate, manufacturers would therefore need to respond through lowering prices or reducing sales of non-EV vehicles”.
Speaking in The Commons, 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, not just by the type of car they use.”
She claimed this would “double” the road maintenance fund in England “over the course of this parliament”.
How the tax will be calculated is still to be revealed. Reports suggest that EV drivers would be required to estimate and declare their annual mileage when they pay VED.
Within the Budget documents, it says that “further detail on how eVED will work” will be revealed when it publishes the scheme’s consultation. 
It did confirm, however, that there “will be no requirement to report where and when miles are driven” or install trackers in cars. 
Fuel duty will increase for the first time since 2010, as the government has announced that it will end the 5p freeze next year.
The current rate of 52.95p per litre was set in 2022 by then chancellor Rishi Sunak in an effort to lower high fuel prices exacerbated by the war in Ukraine. 
The policy is reviewed each March. Reeves said on Wednesday that the government will continue the freeze for “a further five months”, but from September 2026 it will be reversed as part of a three-stage approach. 
This is expected to take place each financial year, with the levy confirmed to be uprated in line with the Retail Price Index (RPI).
This is expected to ultimately raise fuel duty to at least 57.95p per litre – the rate that has been in place since April 2010 – although the government has yet to confirm. 
The OBR said that, in the 2025-26 financial year, fuel duty at its current rate will raise £24 billion (0.8% of GDP), a 1.6% decrease from 2024-25.
With the freeze removed, it forecasts an increase of £0.2bn (1%) in 2026-27, peaking at £26bn in 2028-29. It predicts that this will then fall by £0.9bn by 2030-31 as EV sales rise.
The OBR said, without the rise, there was a “fiscal risk from declining fuel duty revenues due to the transition to electric vehicles”. 
It predicts the 0.7% share of GDP that fuel duty today contributes will fall to a 0.1% share by 2050-51, when “more than 90% of cars on the road are projected to be fully electric”. 
New laws are also coming into force that will force petrol stations to display fuel prices in real time. This will be part of a new online platform, said the chancellor.
Explaining the new rules, she added: “Because I know that changes in wholesale prices are not always passed down to motorists, I’m bring in new rules to mandate petrol station forecourts to show real time price rises through a new Fuel Finder, empowering drivers to find the cheapest fuel, calling out rip-offs and strengthening competition.”
She added: “I know that the cost of travelling to and from work is still too expensive”
This will save “the average household” around £40 a year, she added.
Planned changes to employee car ownership schemes (ECOS) have also been delayed until 2030, chancellor Rachel Reeves confirmed.
ECOS, operated mainly by car makers and dealers, allows employees to buy brand-new cars at significantly reduced prices, with low monthly repayment bills and little to no interest charged. Usually, after six months or 6000 miles, the employee then sells the car back and replaces it with another under the same terms. 
Reeves previously said the government would bring the scheme “into scope of the Benefit in Kind rules” from 6 April 2026. She called ECOS a “contrived car ownership scheme” that “means those benefiting don’t pay company car tax”.
However, “to allow more time for the sector to prepare for and adapt to this change” the scheme has been delayed until 6 April 2030. 
ECOS accounts for around 100,000 registrations every year – 5% of the annual new car market. The scheme is considered to be a significant incentive for attracting and retaining talent within the automotive industry in the UK.
The cap for the UK’s luxury car tax – officially named Expensive Car Supplement – has also been raised for EVs. 
Currently, vehicles priced at £40,000 or more must pay £474 a year for five years. But, Reeves said this will be raised to £50,000 for electric vehicles.
She said: “I’m providing support to our British car industry by increasing the threshold for the Expensive Car Supplement on EVs to £50,000.”
This is expected to help more than a million motorists, she claimed.
It will come into force from 1 April 2026 and apply to EVs registered from 1 April 2025.
The Electric Car Grant (ECG), introduced in August, will be pumped with an extra £1.3bn of funding, confirmed Reeves.
It will also be extended to 2029-2030 financial year, an extension of a year. So far, 35,000 cars discounted through the scheme have been sold since it launched. 
Under the scheme, electric vehicles can qualify for either a £3750 (band one) or £1500 grant (band two). Criteria is strict and is centered upon how environmentally friendly the car is to build and the average emissions within the country in which it is produced.
The government will review the cost of public electric vehicle charging, it said.
It will do so by looking at the impact of energy prices, wider cost contributors, and options for lowering these costs for consumers. 
The review will start in Q1 2026 and a report will be released by Q3.
Alongside this, an extra £100 million will be used to increase the size of the UK’s EV charging infrastructure. This money includes the support of installation home and workplace chargepoints.
For firms, the government is also introducing a 10-year 100% business rates relief on EV charge points used by UK business.
Reeves confirmed the previously announced news that premium car brands will no longer be available via Motability.
The programme helps disabled people in the UK lease vehicles using their government benefits.
Motability Operations, which runs the programme, said earlier this week that cars from makers such as Audi, BMW and Mercedes-Benz are being “removed immediately”.
Speaking about the changes, Reeves said: “Getting the scheme back to its original purpose of offering affordable cars to disabled people”.
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Also what if you do a couple of thousand miles driving on the continent, will that be charged?
Back in 1381, the government of the day had difficulty gathering taxes due to the over complicated way of determining the tax amount. This lead to the Peasants Revolt. Mrs Thatcher had the exact same problem with her poll tax. Ms Reeves would have been wise to study history because I predict she’s going to have the exact same problem.
It’s all very well saying what taxes she’s going to apply, but lets just sit back and watch how they gather these taxes. I doubt they’ll get anywhere near the income they’re predicting from EVs.
As for PHEV’s – does anyone have a clue how this will work? has Ms Reeves and Co thought it thru? Unless you charge additional tax on top of the taxes you’ve already paid for fuel and VAT on that fuel, how on earth are they going to work out how many miles a PHEV has travelled on battery power alone.
By the way, any mention of the £40k luxury car tax being increased? If not isn’t that another tax that’s completely ignored inflation?
Have to congratulate Reeves tho as she’s managed to upset both petrol heads and environmentalists at the same time. I actually feel for dealers who’ve just seen £1000’s knocked of the price of EV and PHEV current stock in one go.  Well done Rachel.
Agree, this does appear crazy on the surface, as I can see the price of used petrol cars rising, and, as you state, the sales of EVs and PHEVs declining. It’s as mad and disjointed as a Peter Cavellini post…..
Labour are utterly bonkers. Their energy policies have resulted in very high electricity prices compared to gas, yet Labour want us all to have air source heat pumps!
 
Many wind farms sit idle as they are either not connected to the grid yet or have no battery storage.
 
Now Labour are putting in place policies which will deter people from moving to electric cars.
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