From April 2028, electric vehicle owners will pay 3p per mile, while drivers of plug-in hybrids will pay 1.5p per mile, under a new tax on electric and hybrid vehicles introduced by the chancellor as part of the UK budget.
These rates will increase annually in line with inflation.
According to the Office for Budget Responsibility (OBR), the new charge represents approximately “half of the fuel tax paid by drivers of petrol vehicles”. The chancellor also confirmed that the current 5p cut in fuel duty will remain in place until September next year, after which it will begin to increase each year based on CPI inflation.
How the pay-per-mile system will work
Drivers will pay based on the number of miles they drive from April 2028. The Treasury said mileage will be recorded once a year, usually during a vehicle’s MOT, or for new cars, around their first and second registration anniversary. The charge will be handled through the existing vehicle excise duty system administered by the DVLA.
An electric vehicle driver driving 8,500 miles in the 2028-29 tax year is expected to pay around £255, which the government says is around half what petrol and diesel drivers pay per mile through fuel tax.
Mileage figures will depend on dashboard odometers, which the government says may be vulnerable to tampering or “timing.”
It said it is exploring ways to reduce this risk, recognizing that the new tax “may increase the likelihood that motorists will choose to time their vehicles.” According to the BBC, a consultation is underway to determine the final design of the plan.
The OBR projects the tax will generate £1.1bn in 2028-29 and will rise to £1.9bn in 2030-31.
However, the forecast largely depends on how quickly people adopt electric vehicles over the next five years. The OBR added that the income “is uncertain”.
The tax applies to electric vehicles registered in the UK, no matter where they are driven in the world. Electric vehicles registered abroad but used in the UK will not have to pay.
From 2030, all new cars sold will have to be electric or hybrid, when the ban on new petrol and diesel vehicles comes into force. Some industry voices warn that the new tax could make electric vehicles less attractive. The OBR said the charge is likely to “reduce demand for electric cars as it increases their lifetime cost”. He stated that “manufacturers would therefore have to respond by lowering prices or reducing sales of non-electric vehicles.”
The OBR expects the tax to result in around 440,000 fewer electric vehicle sales, although other government measures could offset around 320,000 of these.
Under Vehicle Excise Duty, which EV owners started paying this year, the annual charge for luxury EVs will rise from £425 to £440 in April 2026. This applies to EVs costing more than £50,000, following an increase from the previous threshold of £40,000.
Fuel duty has not changed since April 2010, but from September the current 5p cut will be “reversed through a phased approach”, according to the OBR.
Responding to the fuel duty update, RAC policy chief Simon Williams called the freeze a “relief” but warned it would be “very short-lived given the phased increase from next September”. He added that “without the discount, drivers would continue to pay more for a liter of gasoline than before the Russian invasion of Ukraine in February 2022, which caused prices at the pump to skyrocket to record levels.”
Williams also said a new “Fuel Finder” tool launching in early 2026 will help motorists compare fuel prices more easily between gas stations.
(BBC)
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