Chancellor of the Exchequer Rachel Reeves has confirmed that the UK Government will introduce ‘pay-per-mile’ rules for electric vehicles (EV) as a result of falling revenue from fuel duty.
Reeves said that the tax charge will raise around £1.2bn as a result of a the new mileage-based charge on electric and plug-in hybrid cars from April 2028, which will be set at around half the fuel duty rate paid by drivers of petrol cars. EVs will also still have to pay Vehicle Excise Duty. Electric vans will be exempt from the rules.
She also said that the government would be investing an additional £200m in the EV charging infrastructure roll-out as well as 100% business rate relief on charge point operators for the next decade. Reeves also said that she is removing VED from search and rescue vehicles.
The tax rises come alongside a further freeze to fuel duty rates until September 2026, which costs £2.4 billion next year and £0.9 billion in the medium term. The EV pay-per-mile tax is expected to raise around £7 billion per year in current prices by 2050–51.
According to the Office for Budget Responsibility, it has previously projected a loss of around £13 billion per year by 2030 in fuel duty into the Treasury coffers, due to increasing EV uptake as no equivalent taxation for fuel. The OBR also said that as a result of the pay-per-mile rules there will be around 440,000 less EVs on the road, which will be offset by around 130,000 vehicles by the increase in sales from the Electric Car Grant.
Using the modelling for the charge, battery electric vehicles will pay approximately 3p per mile, with charges rising each year in line with inflation. A typical EV driver doing 8,500 miles per year would pay £255 in 2028–29. This is around half the per-mile rate for fuel duty on ICE vehicles.
But it is worth noting that currently public EV charging is taxed at 20% VAT, unlike domestic charging at 5%, with the former raising around £315m into the Treasury by 2030. At the present levels, public EV charging has resulted in around £85m additional income to the Treasury from VAT.
It comes as the UK Government also said it would invest a further £1.3bn into the Electric Car Grant. As widely trailed in pre-Budget reports, Reeves announced the money for the Grant, which was set up in the summer to help growth the EV sector ahead of the 2030 ZEV Mandate goal. The Grant allows as much as £3,750 off the price of an EV under £42,000.
A large number of vehicles have been added to the Grant, although only a few vehicles are at the full discount, including the Ford Puma Gen-E, the Ford E-Tourneo Courier, the Citroën ë-C5 Aircross Long Range, and the new Nissan Leaf, which is built in the UK. The size of the discount is dependant on the UK Government’s rules on sustainable production methods of the EVs.
But the threshold of EVs to be eligible for the Grant is also now set to rise to £50,000 from April 2026. Also, luxury vehicles are due to be removed from the Motability Scheme too, bringing it back to what Reeves said was the scheme’s “original purpose” of delivering affordable vehicles to the disabled.
On energy, Reeves said that changes which were the “greatest driver” of the rising cost of living. She said the Warm Homes plan and energy infrastructure “wasn’t enough” to tackle the issue. She said she would “keep our promise” to tackle the energy price crisis by scrapping legacy schemes previously introduced by the Conservative administration, which would see £150 cut from the average household bill. Previously, the Labour administration said it would bring energy bills down by £300 by the end of the Parliament.
In addition, Reeves announced investment in the Lower Thames Crossing, and highlighted using energy infrastructure as a vehicle for growth. She announced £13bn of flexible funding for the mayors across the UK to invest in skills, business support and infrastructure.
In addition, AI growth zones have been announced for Wales, supporting through a £10m investment into the semiconductor sector. Scotland will also receive £14m for low carbon technologies in Grangemouth and £20m for infrastructure in Inverclyde.
“It’s not just what we invest, it’s how we invest”, Reeves said. Speaking about regional investment, Reeves added that “the benefits of investment and growth must be felt in every part of the United Kingdom”.
Chancellor of the Exchequer, Rachel Reeves, said:
“All cars contribute to wear and tear on our roads, so it is only right that our motoring taxes cover EVs via a modest per mile levy, with extra support to keep EV ownership attractive.”
Edmund King, AA president, said on EV pay-per mile and fuel duty:
“The Budget has put drivers at a fork in the road with the Chancellor announcing major tax proposals for EV owners. Drivers fully understand that the Government needs to get the balance right between raising cash for roads investment, whilst ensuring it doesn’t slow down the transition to electric cars in order to meet environmental targets.
“For more than 120 years, The AA has been the voice of the motorist and today’s Budget signals a huge moment in the history of UK motoring. We will work with the government to ensure that whatever people drive, they will be treated fairly.”
“We recognise that fuel-duty revenue is declining as drivers switch to electric vehicles. The AA is uniquely placed to assist Government in designing a fair and transparent system. The challenge is clear: it must be simple, trusted, and equitable for all road users.
“Getting the timing right is crucial, and there will be concerns that should pay-per-mile for EVs be introduced too soon it may put slow down the switch to electric cars.
“Drivers will naturally have questions about such a scheme, which is why The AA will lead the charge for a fair and transparent system which is easy to understand. We will also need protections for certain groups, like carers who use their car for work and rural drivers who are more car dependent.
“Other considerations like appointing a truly independent body to determine the rate would help give confidence to drivers and improve the level of trust in the system.”
Tanya Sinclair, CEO, Electric Vehicles UK:
“The UK’s motoring tax system needs fundamental, long-term reform. Change is inevitable as more drivers switch to electric, and no government enjoys having to wholesale reform car taxation. But the key question is how. The new pay-per-mile scheme proposed today must be designed carefully, consulted on properly and explained transparently.”
Vicky Edmonds, CEO of EVA England, said:
“This is completely the wrong time to be taxing EV drivers when they still make up only 5% of vehicles on UK roads. We have made tremendous progress to convince more and more drivers that EVs can and do truly work for them, and we genuinely welcome today’s announcements to increase the threshold for the luxury car tax for EVs, and to provide more money for subsidies for drivers and charging.
“It is also good to see, finally, a promised future increase in fuel duty to encourage more drivers across to electric. But even with that, a Pay per Mile scheme in two years is unnecessarily rocking the boat at such a pivotal point for the market. We are willing to work with Government to ensure EV drivers pay their fair share, but this must be introduced sensibly to avoid slamming the brakes on the transition to electric vehicles.”
Delvin Lane, CEO, InstaVolt, said:
“We recognise that reforming how the UK funds its roads is necessary in the long term, and that pay-per-mile charging will eventually form part of that solution. However, introducing such a system at this stage risks putting off drivers who are considering making the switch to electric by layering on new costs.
“The Government must also consider the disproportionate impacts that such a scheme will have on drivers without home charging, who are already paying 20% VAT on public charging vs 5% at home, and on rural/low-income commuters.
“We urge the Government to work closely with the charging and automotive sectors to co-design a fair, future-proof system that maintains incentives to switch to zero-emission vehicles while ensuring sustainable road taxation.”
John Lewis, CEO, char.gy, said:
“While road tax reform is understandable, introducing pay-per-mile charges too early risks discouraging people who are on the fence about switching. For the many drivers who depend entirely on public and on-street charging, adding new usage-based costs creates uncertainty and may slow adoption.”
Adrian Fielden-Gray, COO of EV charge point operator, Be.EV, said:
“The Budget is clearly seeking to close the gap on public finances, put the economy into gear, and rev the engine of British growth. As laudable as the goal is, though, you have to wonder if the Chancellor’s approach is fully up to date with the realities of Britain’s national infrastructure and urgent energy transition needs.
“Tilting the scales back in favour of fossil fuel vehicles by adding extra costs on top of EV usage runs against the grain of both the progress we have made on road electrification and the destination that we need to be driving for.”
Daniel Parker-Klein, Director of Policy and Communications for CILT (UK), said:
“A pay-per-mile charge for EVs is a logical step as fuel duty revenues decrease, but it is not a strategy on its own.
“The UK needs a clear, integrated plan for how we fund roads, rail, and wider mobility – one that is fair, future-proof and aligned with decarbonisation goals.”
Russell Olive, UK Director at charging management software company vaylens, said:
“If the government is serious about its net zero ambitions, it shouldn’t be charging the very people and businesses who are helping them deliver.
“For businesses juggling hundreds of electric vehicles, this could be an additional £40k on the books a year. At a time when every line on the balance sheet is under scrutiny, this extra overhead is a cost many businesses won’t be able to absorb. The added financial and administrative burden has also not been thought through. Companies will need new processes to gather the data and comply.”
Kelly Becker, President, UK, Ireland, Belgium and The Netherlands, at Schneider Electric, said:
“We appreciate the need to replace the revenue lost by fuel duty but introducing a tax on EVs at this stage risks slowing the growth of both the EV and electric charging markets while both are still very much finding their feet. It also sends mixed messages to motorists looking to make the switch to electric and could even make EVs less financially attractive.
“Taxation will be inevitable as the EV market matures, but for now, the UK is still building out the essential infrastructure and charging networks needed to support widespread EV adoption. Focus should remain on encouraging investment and growth to accelerate the move to clean transport. The Government has an important role to play in supporting adoption and helping to ensure a smooth transition.”
Michael Shaw, CEO of Aegis Energy, said:
“We welcome the news that electric vans will be exempt from the pay-per-mile EV tax announced in today’s Autumn Budget. With commercial transport responsible for around 10% of the UK’s total emissions, any additional tax burden could have discouraged businesses from investing in cleaner vehicles at a time when confidence is critical.
“If the Treasury implements the new tax regime in a transparent, fair and efficient manner that engages fleets, drivers, and manufacturers throughout the process, it will usher in a modern and mature approach to the domestic EV market that is built to go the distance.”
Sue Robinson, Chief Executive of the National Franchised Dealers Association (NFDA), which represents franchised car and commercial vehicle dealers across the UK, comments on the measures announced in today’s Budget set by the Chancellor:
“Today, the Chancellor has had to address a fiscal shortfall of around £30 billion, our sector employs approximately 600,000 people across multiple disciplines and must therefore be treated as a vital priority.
“The announcement made today by the Chancellor provide some optimism, for instance freezing fuel duty, but it also underlines that in many areas the Government continues to fall short in delivering meaningful support for the automotive industry such as the pay per mile tax.
“With the Government now limiting itself to one fiscal event each year, the Budget carries greater significance and the sector has been anticipating clearer direction since Rachel Reeves’ first Budget in October 2024 and the Spring Statement in April 2025.
“Registrations have fluctuated in a challenging financial climate and the transition to electric vehicles (EV) remains behind the pace required to meet ZEV Mandate targets. As such, there were undeniably missed opportunities in today’s measures, omissions that risk slowing the industry’s progress.”
Philip Nothard, chair, Vehicle Remarketing Association, said:
“The big news is pence per mile road charging for introduction in April 2028. Its arrival is no surprise and really part of the ongoing normalisation of the EV and hybrid markets. The priority here should be to ensure that it doesn’t create a negative perception among consumers when it comes to both new and used electric cars, meaning it needs to be easy to understand and simple to collect. It should be noted that the rates being proposed by the government add up to road tax at about half the level of an ICE equivalent.
“Designed to offset any decrease in demand caused by road charging is the extension of the new electric car grant, a scheme which has been quite successful in recent months when it comes to increasing retail demand for EVs. It’s fair to say that the amounts being committed are substantial although I suspect, if you’d asked the remarketing sector, they’d have liked to have seen at least some of that cash channelled towards used EVs.
“Elsewhere, it’s pleasing for dealers that employee car ownership schemes are being delayed, which will hopefully create time for more consultation, and the increase in the expensive car allowance is similarly welcome.
“On a wider basis, given the challenges that the Chancellor faces, this is probably a fairly balanced Budget. The effects of freezing personal tax thresholds are pernicious over time while the changes in salary sacrifice for pensions are also a negative but there is little here that will really upset businesses and some measures, such as help with electricity bills, might make consumers feel at least a little more positive.”
Max Sugarman, Chief Executive of ITS UK, said:
“We strongly welcome today’s announcement by the Government setting out, for the first time in more than a decade, a shift to a distance-based national road pricing scheme. The EV mileage charge is much needed in order to meet the emerging gap in tax revenue from falling fuel duty receipts, as our vehicle fleet electrifies, and means we can finally move to a fairer, more effective road tax system, that charges based on usage.
“The UK transport technology sector offers the proven capabilities and expertise to deliver this new road pricing scheme in a smarter, more effective way than a simple odometer reading. The industry has the tools to introduce a road pricing system, utilising digital connectivity and roadside infrastructure, that can give policy-makers greater levers to manage their transport networks, and deliver a more effective system for the Treasury too, covering issues, for example, around foreign vehicles. We look forward to working with the Government, on behalf of the sector, as they consult on these proposals.
“We welcome other measures in this Budget too – including the rail fares freeze, the inclusion of funding for projects like the Lower Thames Crossing, TransPennine Route Upgrade and Midlands Rail Hub – all of which will support greater connectivity for communities across the UK.”
“Make no mistake, by adding a pay-per-mile tax on EVs, the Chancellor is gambling with the UK’s EV market just as it’s finding its muscle,” says Mike Peirce, Executive Director of Systems Change at global non-profit Climate Group.
“It threatens the Government’s approach to reducing emissions and reaching its own ZEV Mandate. In a highly competitive global race for electric vehicle investment this will leave investors confused.”
Richard Sallnow, transport expert at PA Consulting, said:
“Today’s Budget forces us to face a simple reality: fuel duty faces a cliff edge, and without a refresh of road taxation we’re heading towards a multibillion-pound black hole in transport funding. Moving to a pay-per-mile system for electric vehicles is an inevitable step, but its design and implementation needs careful consideration for a smooth journey ahead.
“This shouldn’t be seen as a radical shift – internal combustion engines already pay a per mile charge of sorts through fuel duty. This latest announcement is an extension of that same principle for zero emission vehicles.
“The quickest, fairest way to start is a simple mileage-based charge for zero-emission vehicles, verified through annual mileage readings. It gets the system running fast without intrusive surveillance or costly technology.
“There will be questions from the public about how this policy will work, but that shouldn’t slow progress. Clear communication and transitional measures – such as free annual miles or phased charges – can help maintain confidence while keeping the shift to EVs on track.
“Implementation will take years, but now is the time for decisive action. By working with clarity and conviction, the government can deliver a road-pricing system that people understand, trust, support and rely on.”
The chief executive of EV charging industry association ChargeUK Vicky Read said:
“Drivers and the companies investing in charging infrastructure were looking for clarity on the EV transition today. Instead we got a mixed picture.
“More drivers switching to electric will be able to save up front, but they will face increased running costs thanks to the EV Excise Duty and delayed action on the causes of surging public charging prices.
“Government has listened to our call to defer business rates on EV charging bays, heading off further costs for charge point operators and their customers. Funding to help local authorities work with our sector to deliver charging for their communities is also welcome. These inclusions send a strong signal to investors that this Government intends to back the charging sector.
“But to build at the rate required and to deliver widespread and affordable charging for all drivers, we need Government to go further.
“It has chosen not to act immediately on the sky-high energy costs that are pushing driver prices up today, despite promising to look at energy costs affecting other sectors. It has not abolished the VAT penalty for public charging, risking EVs becoming a luxury for those with driveways.
“The announced review on public charging costs offers the opportunity to remedy these omissions. The review will need to look at VAT, standing charges, policy levies and wholesale energy costs, with actions implemented swiftly, given that our sector is facing even higher energy bills from April.
“The charging industry stands ready to deliver what UK drivers need. We expect Government to back us.”
Paul Hollick, chair, Association of Fleet Professionals, said:
“This is a Budget with several points of considerable interest for fleets, both in the short and longer term.
“The most immediate news is that fuel duty remains frozen only until September 2026, when it will begin to rise in stages. This is probably unexpected and definitely unwelcome at a time when fleet spending is under pressure. While we welcome the idea of a national fuel finder that will make lower prices easier to access, we strongly urge the Chancellor to rethink.
“Of interest in the longer term is the introduction of pence per mile EV road charging, planned for April 2028. This idea has been mooted ever since fleets started adopting electric cars in large numbers and was widely trailed in the press ahead of the Budget. What is needed now is a conversation across the fleet sector about what we want from such a scheme in terms of its timetable and implementation – a dialogue where we expect the AFP to take a central role.
“Initially, our main concern is that it shouldn’t arrive in a form that could hamper electrification or cause any hesitation among potential business and private EV buyers. We’re looking at a point two-and-a-half years away, which at least creates time and space for serious discussion.
“It is also welcome that electric car grant funding has been increased quite substantially, a measure presumably designed to counter any fall in EV demand caused by road charging. While this scheme is perhaps more directly relevant to retail rather than fleet customers, it’s a positive for everyone if the EV market receives any kind of boost.
“In terms of the wider economy, the Chancellor clearly has a financial hole to fill and has looked to meet that need in ways that are largely designed to be unnoticed by most businesses and households, even while the tax take is increasing. How this impacts on consumer and business confidence remains to be seen.”
Tom Hurst – UK Country Director at Fastned, said:
“All support for the EV transition is welcome, and the overall direction is a positive one. Today’s announcements on business rates relief for charge point operators are extremely positive and will give clarity and certainty to the industry’s investments going forward.
“EV uptake is still developing and any measure that increases the perceived cost of driving electric risks slowing momentum, just as Fastned and other charge point operators are investing around £6bn upfront to build the public charging network the country will depend on.
“These investments are made years ahead of demand, so confidence in future EV growth is essential. Setting out a clear direction for how EV taxation will evolve will help ensure drivers remain confident in switching and support the continued expansion of the UK’s charging infrastructure.”
“Measures to extend the Electric Car Grant and providing £200 million for public charging are also positive signals. However other meaningful decisions have been delayed until next year which leaves a risk to continued rollout.
“Standing charges remain high and 20 per cent VAT on public charging continues to hold back momentum. Equalising VAT would unlock faster rollout, stronger investment and a smoother path to EV adoption ensuring all drivers can access affordable, fair and simple charging, regardless of whether they have a driveway.”
“To unlock the crucial ultra rapid charging infrastructure that can meet growing demand, the Government must urgently tackle other cost barriers that undermine the business case for operators. If we want an electrified transport future, we need decisions that deliver real power.”
Mike Nakrani, CEO, VEV:
“The decision made in the Budget to exclude electric commercial-fleet vehicles from eVED is a smart and welcome move. It recognises the essential role fleets play in the UK economy and removes an unnecessary cost barrier for operators looking to go electric.
“The Government has also made real progress with the Depot Charging Scheme, which is already helping fleets well along the path to installing reliable, high-power charging at their depots. But to unlock the full potential of commercial e-fleets, this support must go further.
“Expanding the Scheme, in addition to the measures speeding up grid-connection processes and backing smart-energy solutions, would give businesses the confidence to electrify at scale. With the right policy backing, the UK can accelerate cleaner, more efficient commercial transport – and we at VEV are ready to help fleets make that transition.”
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