Plug-in hybrid electric vehicles (PHEVs) could be subject to the Government’s new pence-per-mile tax, but electric vans are expected to be excluded.
It comes after initial details of the new electric vehicle (EV) tax broke last week (November 5), with proposals expected to be confirmed by the Chancellor, Rachel Reeves, in the Autumn Budget.
Fully electric cars are expected to attract the new charge in addition to existing road taxes, with the Treasury arguing it is a question of fairness to petrol and diesel drivers.
PHEVs would also be subject to the new tax, but at a lower pence-per-mile rate, with vans exempt, according to The Times.
The new levy, described as ‘VED+’, is expected to apply from April 2028, following a consultation that will be launched after the Budget on November 26.
It is estimated that up to six million people will be driving EVs by the time it comes into effect.
Last year, the Association of Fleet Professionals (AFP) warned that the introduction of a pay-as-you-drive charge for electric vehicles could cause “unforeseen effects”.
This included delaying further fleet adoption of EVs for those fleets and drivers that are covering higher mileages.
Speaking to Fleet News this week, AFP chair, Paul Hollick, warned it would be particularly detrimental to a “sluggish” retail market for EVs.
“Any retail buyer thinking about having an electric vehicle will now probably opt for a diesel or petrol vehicle,” he said. “It doesn't make sense to do this now when it won’t potentially happen until 2028.
“It’s not good news for the industry and we know that, particularly in the retail space, EV adoption is still quite sluggish.”
Hollick accepts that with falling fuel duty receipts, the Government will have to replace that revenue stream by taxing EVs. “Everyone accepts that, it’s just the timing that’s lousy,” he said.
Reports suggest that EV drivers will be asked to estimate their annual mileage at the start of the year and pay a charge based on the suggested 3p per mile rate.
Vehicles would not be electronically tracked and any over/under estimation would be carried over to the following year.
The AFP launched a Future Roads committee back in 2020, recognising that some form of road pricing could be introduced towards the end of the decade.
It thought that the easiest approach would be a telematics-based system to track mileage. However, it also found that, with the MOT a source of mileage information, a new tax could be applied there, or it could be included when insuring the vehicle, especially in the retail space.
Government plans to tax electric cars on miles driven have been widely criticised by the automotive industry.
While it recognises the need for a new approach to motoring taxes, the Society of Motor Manufacturers and Traders (SMMT) said that a pence-per-mile EV tax would be “entirely the wrong measure at the wrong time”.
“A smarter, fair and future-ready taxation system requires a fundamental rethink – one that must be done in full partnership with the industry and other stakeholders,” said a spokesperson.
After carmakers were left shocked to learn of the Government plans last week, it is understood that Government officials have since held meetings with major manufacturers to confirm the plans.
The Treasury has refused to comment on speculation around the forthcoming fiscal statement, but the Government said that, while fuel duty covers petrol and diesel, “there’s no equivalent for electric vehicles”.
“We want a fairer system for all drivers,” a spokesperson added.
The Government’s zero emission vehicle (ZEV) mandate requires manufacturers to ensure 28% of all new car sales are pure electric this year, up from 22% last year.
They are also targeted with ensuring 16% of all new van registrations are zero emission this year – an increase on the 10% mandated in 2024.
The latest registration figures for LCVs from the SMMT show that battery electric vans currently represent just 9.1% of all new registrations – below the 16% share mandated (which rises to 24% in 2026).
With electric vans now expected to escape the levy, Michael Shaw, CEO of Aegis Energy, said: “The decarbonisation of the UK’s commercial transport sector is vital to the country’s economic growth and environmental progress.
“The Government’s focus should remain on policies that enable fleet operators to make this transition, rather than those that risk slowing it down.
“It’s therefore welcome news that electric vans will be exempt from the proposed pay-per-mile EV tax in the upcoming Autumn Budget.
“With commercial transport responsible for around 10% of the UK’s total emissions, the move to zero-emission fleets is both urgent and complex.
“Any additional tax burden could have discouraged businesses from investing in cleaner vehicles at a time when confidence is critical.”
He added: “If the Treasury implements the new tax regime in a way that is transparent, fair, and efficient, it will usher in a modern, mature approach to the domestic EV market, ensuring it remains stable and fiscally sensible for both drivers and the Government.
“It is vital that fleets, drivers, and manufacturers are included in this process, and that the government continues to prioritise the UK’s transition to cleaner energy transport, as many of its previous policies have achieved.”
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Gareth has more than 20 years’ experience as a journalist having started his career in local newspapers in the 1990s. Prior to joining Fleet News in 2008, he worked in the public sector as a media advisor and is currently news editor at Fleet News.
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