Reeves Announces 2028 Pay-per-Mile System for Electric Vehicles in Latest Budget Update

In a significant budget update, Chancellor of the Exchequer Rachel Reeves announced a new pay-per-mile tax system for electric vehicles (EVs). Set to take effect in April 2028, the initiative aims to counterbalance falling fuel duty revenues due to the rising popularity of electric and plug-in hybrid vehicles. The new tax is projected to generate approximately £1.2 billion annually and will charge EV owners about 3p per mile, which is roughly half the fuel duty rate paid by traditional petrol vehicles.

Key Details of the Pay-per-Mile System

• The pay-per-mile charge is effective from April 2028.
• Estimated revenue of £7 billion per year by 2050-51.
• EVs will still be required to pay Vehicle Excise Duty.
• Electric vans will be exempt from this new charge.

Context of the Tax Change

The move comes as the UK Government faces a predicted annual loss of £13 billion in fuel duty revenues by 2030 due to increased EV usage. The Office for Budget Responsibility (OBR) has indicated that the new tax measures could lead to 440,000 fewer EVs on the road, although this may be partially offset by an increase in sales driven by the Electric Car Grant.

Investment in EV Infrastructure

Alongside the mileage tax, Reeves announced an investment of £200 million to enhance EV charging infrastructure. There will also be a 100% business rate relief for charge point operators over the next decade. The Government plans to allocate an additional £1.3 billion to the Electric Car Grant, which offers discounts ranging from £3,750 for vehicles costing up to £42,000.

Reactions and Implications

Industry leaders have voiced varying opinions regarding the pending pay-per-mile charge. Some express concern that the initiative may deter potential EV buyers at a critical juncture. Edmund King, President of the AA, emphasized the need for balance in road tax policy, stressing that while investment in roads is necessary, it must not slow down the transition to electric vehicles.

Other stakeholders, including Tanya Sinclair, CEO of Electric Vehicles UK, argue for a careful approach in designing the new system to address diverse consumer concerns and ensuring transparency. Meanwhile, Vicky Read, chief executive of ChargeUK, highlighted the need for clarity in the government’s EV policies and the urgency of addressing high public charging costs.

Future Developments

The proposed pay-per-mile charges reflect an ongoing shift toward restructuring the UK’s transport financing as electric vehicles gain market share. The Government’s commitment to invest in charging infrastructure and enhance the Electric Car Grant demonstrates a proactive stance in facilitating the EV transition while navigating fiscal challenges.

As the launch date approaches, public discussions and consultations will be crucial to ensuring that the new taxation framework is well-received and beneficial for all road users in the long term.