UK Introduces 3p-Per-Mile Tax on Electric Vehicles from 2028
The UK government plans to impose a pay-per-mile tax on electric vehicles starting April 2028, targeting lost fuel duty revenues as EV adoption accelerates. This measure, detailed in a leaked Office for Budget Responsibility document, sets the rate at 3 pence per mile for battery electric cars, roughly half the equivalent fuel duty for petrol vehicles. Combined with existing vehicle excise duty, the policy aims to raise £1.4 billion by 2029-30 amid broader tax adjustments totaling £11 billion.
The taxation applies to both battery electric and plug-in hybrid vehicles, with plug-in hybrids facing a reduced 1.5 pence per mile in the initial 2028-29 fiscal year. Rates for both categories will adjust annually based on the Consumer Prices Index. For an average battery electric car driver logging 8,500 miles annually, the charge equates to £255 in the first year. The Office for Budget Responsibility projects revenue of £1.1 billion in 2028-29, climbing to £1.9 billion by 2030-31.
This initiative stems from a government consultation on replacing fuel duties, which currently generate significant income from internal combustion engine vehicles. As electric vehicles exempt from fuel taxes proliferate, the pay-per-mile system seeks to balance the fiscal shortfall without discouraging the shift to zero-emission transport. The zero-emission vehicle mandate, mandating EVs to form an escalating share of manufacturer sales up to 80% by 2030, remains intact, but the tax could elevate lifetime ownership costs for electric models.
Analysts forecast a demand dip, with approximately 440,000 fewer electric car sales over the projection period compared to prior estimates. Manufacturers may counter this by slashing prices or curtailing sales of non-EV models to comply with quotas. The policy’s net impact includes 130,000 additional sales from complementary Budget incentives, such as enhanced grants or infrastructure investments.
Implementation details remain under review, with the charge administered via annual declarations or telematics integration for accuracy. Critics highlight potential equity issues, as higher-mileage urban drivers face steeper burdens than rural low-usage owners. The automotive sector anticipates adjustments in fleet planning, with corporate buyers recalculating total cost of ownership under the new regime.
This taxation framework aligns with broader European efforts to sustain road funding amid electrification. In Germany, similar distance-based proposals for EVs are under debate, while France explores vignette systems. UK policymakers emphasize the rate’s moderation to preserve EV incentives, including the ongoing salary sacrifice scheme for company cars.
The move underscores the tension between fiscal needs and environmental goals in the transition era. With electric vehicle market share projected at 28% by 2028, the policy could influence buyer behavior toward more efficient models or shared mobility options. Final legislation will follow parliamentary scrutiny in the coming months.
