Electric Vehicle Owners to Encounter New Pay-Per-Mile Tax System

Electric vehicle owners in the UK will soon encounter a new pay-per-mile tax system set to impact their driving costs. This initiative aims to create a fair tax structure as the country transitions to electric vehicles.

Overview of the New Tax System

From the 2028-29 financial year, electric vehicle owners will be subject to a per-mile charge. For instance, a driver covering 8,500 miles may expect to pay approximately £255. This amount is significantly lower—about half—compared to what petrol and diesel drivers currently owe in fuel tax.

Projected Revenue and Growth

The Office for Budget Responsibility (OBR) projects that this new tax will generate substantial revenue. The expected intake is £1.1 billion for the financial year 2028-29, increasing to £1.9 billion by 2030-31. However, actual revenue is contingent upon the adoption rate of electric vehicles over the next five years.

Impact on Electric Vehicle Sales

Concerns have arisen regarding the potential effects of the new tax on electric vehicle sales. The OBR noted that the implementation of this charge might lead to a decrease in electric vehicle demand. Specifically, it estimates that the new tax could result in around 440,000 fewer electric car purchases over the coming years.

Government Mandates and Industry Responsiveness

By 2030, a ban on the sale of new petrol and diesel vehicles will take effect, necessitating that all new cars be electric or hybrid. This regulatory environment may compel manufacturers to either lower vehicle prices or reduce the sales of non-electric models to maintain market balance.

Uncertainties and Future Projections

Despite the anticipated revenue from the pay-per-mile charge, the OBR admits uncertainties could affect total earnings. Factors like a decline in sales, coupled with reduced driving distances, may lead to a potential shortfall of £200 million by 2030-31.

• Expected per-mile charge for electric car owners: £255 for 8,500 miles
• Projected revenue for 2028-29: £1.1 billion
• Projected revenue for 2030-31: £1.9 billion
• Estimated reduction in electric car sales: 440,000 vehicles
• Potential shortfall in revenue by 2030-31: £200 million

This new pay-per-mile tax system marks a significant shift in how electric vehicle users will contribute to national tax efforts, as the UK continues its drive toward sustainable transport solutions.