- UK Chancellor Rachel Reeves has announced the UK’s latest budget, which contains numerous policy changes for drivers and drivers of electric vehicles in particular.
- A pay-per-mile tax for fully-electric cars and plug-in hybrid cars will be implemented from 2028, whilst the threshold for the luxury car tax will be raised from £40,000 to £50,000 next year.
- These are the key ways the new budget could affect you, whether you’re currently an EV driver or considering to go electric for your next car.
New UK budget brings multiple changes for EV drivers
Pay per mile – Luxury car tax – Electric Car Grant – EV charging – Motability
Pay per mile EV tax
As was rumoured earlier this month, this budget marks the future introduction of a pay-per-mile road tax for electric vehicles, which if approved, would be implemented from 2028.
The argument from the government is, that with the proportion of electric cars on UK roads continuously rising, the treasury is set to miss out on millions of pounds worth of fuel duty over the next few years – with this new tax helping make up this shortfall.
However, this will be an added cost to EV ownership which comes in addition to vehicle excise duty (which EVs were exempt from until earlier this year). At a proposed rate of 3p per mile, this would add another £300 in annual running costs to someone who drives their EV. Plug-in hybrid vehicles will also be subject to this charge, at a slightly lower rate of 1.5p per mile.
For those that can charge their EV at home, EVs will still remain much cheaper to run than an equivalent diesel or petrol car even with this scheme, but there has still been considerable resistance to this proposal from the EV industry, which is likely to continue in the run up to 2028. The Office for Budget Responsibility’s own leaked report estimates that this pay-per-mile measure will result in 440,000 less EVs on UK roads in the future.
Luxury car tax
When the EV exemption for vehicle excise duty (car tax) was ended earlier this year, the government also introduced a so-called luxury car tax – an additional £425 tax payable for the first five years of an EV’s life, if its list price was above £40,000. From April 2026, this threshold will be raised to £50,000, allowing popular EV models such as the Tesla Model Y to be exempt from this additional charge.
Extension of Electric Car Grant
During the budget, Rachel Reeves also confirmed that the Electric Car Grant, which offers up to £3,750 off the cost of a new EV that meets certain production criteria, will now be available until 2030 – the same year that the sale of new pure petrol and diesel cars will be outlawed. This is being made possible thanks to an additional £1.3 billion being committed to the scheme.
Public charging
Another £200 million will be invested in the government’s mission to accelerate the rollout of EV charging. Currently, the UK is working towards a target of 300,000 public charge points by 2030, with that number currently standing at just under 87,000, according to Zapmap’s latest figures.
Motability scheme changes
The Motability scheme, which allows people to use their mobility allowance to exchange a vehicle, is also having changes made as part of the budget. ‘Premium brands’ such as Mercedes-Benz, Audi, and BMW are being removed from its availability list.
For those looking to lease an EV through the Motability scheme, this means the removal of models such as the BMW iX1 and Audi Q4 e-tron. There are still many electric options available through the scheme, from small models like the Dacia Spring up to 7-seaters like the Peugeot E-5008.
How has the industry reacted to the changes?
Chris Pritchett, Partner at Shoosmiths, commented:
“The transition to EVs is gathering momentum, both in terms of accessible prices, choice of vehicle and proliferation of charging infrastructure, but it’s still at a sensitive stage. Whilst it is quite understandable that the treasury needs to replace lost fuel duty revenues as more cars and commercial vehicles on our roads are electric, it’s important that a potential £200+ tax hit on EV drivers isn’t allowed to stall demand. Reducing VAT on public charging, maintaining the EV car grant and continuing to support EV infrastructure roll-out in rural areas without much coverage are all important ways to keep demand on track, whilst not ignoring the pressing need for driver education and awareness on the benefits of switching to electric, which is utterly critical.”
Simon Down, automotive tax director at Deloitte, added:
“The EV mileage charge, due to come into effect in April 2028, will mean an increase in the running costs of electric vehicles, albeit not a significant impact on consumer finances. Based on an average annual mileage of 7,100, the charge would cost Battery Electric Vehicle (BEV) drivers c.£213, and Plug-In Hybrid Electric Vehicle (PHEV) drivers c.£107 per year respectively. An increase of c.£213 per year would equate to a c.2% increase in the overall cost of funding a typical fleet car.
The proposed changes to the threshold for the Expensive Car Supplement (ECS) for vehicle excise duty in 2025 will see the threshold rise to £50,000 from £40,000. This can save drivers £440 per year and applies from years two to five of ownership. Over a typical four-year lease, this will save consumers £1,320.
When combined, if a consumer’s EV is valued below £40,000, or over £50,000, they will see a small cost increase from April 2028. However, if the EV costs between £40,000 and £50,000, this Budget means the consumer may be c.£900 better off over the four-year lease, saving £1,320 in ECS but paying an extra £426 in EV mileage charges.”
