As the U.K. government pushes forward with its green initiatives, a proposed new tax on electric vehicles (EVs) is drawing sharp criticism from industry stakeholders. The plan to implement a pay-per-mile tax could dampen enthusiasm for EV adoption, just when the automotive sector is trying to meet ambitious zero-emission targets.
In a recent budget announcement by Treasury Chief Rachel Reeves, the government unveiled plans to introduce a 3 pence per mile charge for electric vehicles starting April 2028. Hybrid vehicles will face a lower fee of 1.5 pence per mile, with both rates set to increase annually in line with inflation. This move is part of a broader strategy to compensate for the expected decline in fuel duty revenue, which is projected to halve by the 2030s as the shift away from traditional combustion engines accelerates.
The Office for Budget Responsibility (OBR), an independent government forecaster, estimates that the new tax will recoup about a quarter of the 0.6% GDP revenue anticipated to be lost from reduced fuel duty by 2050. For example, an electric car driver covering 8,500 miles yearly in 2028-29 could see a tax bill of £255, roughly half of what petrol and diesel drivers pay currently in fuel taxes.
Industry leaders warn that this tax could deter consumers at a pivotal time for the EV market. Sue Robinson, CEO of the National Franchised Dealers Association, expressed concern: “Introducing additional costs for EV drivers risks undermining consumer confidence at a critical moment for the electric vehicle market.” She further indicated that the OBR forecasts a reduction of 440,000 in EV sales, potentially affecting the industry’s ability to meet zero-emission vehicle targets.
The U.K.’s zero-emission vehicle mandate requires that 28% of all vehicle sales this year be zero-emission, climbing to 80% by 2030. However, recent forecasts by the Society of Motor Manufacturers and Traders suggest that only 23% of new car sales will be battery-electric vehicles this year.
In addition to the mileage tax, the budget proposes raising the price threshold for the annual tax on expensive electric cars from £40,000 to £50,000. The government plans to extend the electric-car grant, offering discounts of up to £3,750 on eligible EVs, and increase funding for public charging infrastructure.
Mike Hawes, CEO of the SMMT, acknowledged the positive aspects of these measures but criticized the timing of the new tax: “The wrong measure at the wrong time.” He emphasized that the automotive sector needs to collaborate with the government to maintain the U.K.’s competitiveness and investment attractiveness.
Volkswagen Group U.K. is still assessing the budget’s details but appreciates measures that support EV adoption, such as grants and charging infrastructure enhancements. However, a spokesperson echoed industry concerns: “The proposed per mile charging on electric vehicles is, as the Society of Motor Manufacturers and Traders has said, the wrong measure at the wrong time.” They stressed that the tax risks deterring consumers from transitioning to e-mobility at a critical phase, despite Volkswagen’s efforts to introduce over 20 battery-electric models to the U.K. market.
Original Story at www.morningstar.com