UK sets out a pay per mile future for EVs

Electric cars will pay three pence per mile. Plug in hybrids will pay 1.5 pence. The scheme aims to replace declining fuel duty revenues as more drivers move to electric power.

This is the first time the UK has confirmed a mileage based charge for private cars. The decision marks a major change in how the country intends to fund its roads.

What has the government announced?

Reeves confirmed that the new tax will apply to all UK registered electric and plug in hybrid cars from April 2028. The rate will then rise with inflation from 2029. Vans, buses, HGVs and motorcycles will remain outside the system at the start.

Government documents state that the system will rely on annual odometer readings rather than telematics or GPS monitoring. Drivers will estimate their mileage each year and pay at the start of the cycle. They will then submit actual mileage at the end of the year. The figure will be verified during MOT tests or through a new annual check for newer cars. Payments will be reconciled once the actual distance is known.

Reeves said the UK wants drivers to contribute “according to how much they drive and not just by the type of car they own”.

The Treasury expects the new charge to raise £1.1 billion in 2028 to 2029. That figure will rise to £1.9 billion by 2030 to 2031. This will help replace the growing gap in fuel duty revenue as petrol and diesel use falls.

How will the scheme work in practice?

The design is built around two principles: simplicity and privacy. The odometer approach avoids high tech monitoring. Officials argue this keeps compliance simple for drivers. It also avoids any public concern about tracking.

Drivers will report expected mileage at the point of renewal. They can pay in full or choose monthly instalments. At the end of the tax year they will provide an actual reading. The system will adjust the bill up or down.

Government sources say this model avoids the “Big Brother” perception and keeps costs down. The Department for Transport says its aim is to make the process “as simple as possible”.

Fuel duty will remain frozen until September 2026. The government argues that this will preserve the running cost advantage of EVs until eVED begins in 2028.

What is the current state of UK EV sales?

The UK EV market has grown steadily but unevenly. Battery electric vehicles made up roughly 16 percent of new car sales in 2023 and around 17 percent by mid 2024. Growth slowed in 2024 due to high upfront prices, charging gaps and concerns around resale values.

Industry forecasts expect EVs to reach between 25 percent and 30 percent of new sales by 2025. This aligns with the early phases of the Zero Emission Vehicle mandate. That mandate requires 80 percent of new cars to be zero emission by 2030.

This means the UK market must scale from around 350,000 battery EV sales in 2024 to more than one million a year by the end of the decade. The pace of growth must rise sharply to meet these targets. Analysts say this will require stable incentives, strong charging deployment and clear long term policy.

How will the new tax affect future sales?

The Office for Budget Responsibility forecasts a clear impact. It expects EV sales to fall by about 24,000 vehicles a year on average once the tax begins. Over the period from 2028 to 2033 the total reduction could reach 440,000 vehicles.

Placed in context, this is significant. The UK needs EV uptake to accelerate. A shortfall of 440,000 sales over five years reduces the total pool of EVs on the road at a time when the ZEV mandate requires rapid growth. It could also slow the shift in the used car market, since fewer new EVs today mean fewer affordable EVs later.

The OBR notes that new government incentives may recover around 130,000 of the lost sales. Yet this still leaves a substantial gap. This matters because the UK is on a timeline. If EV sales fall below the required trajectory, the 2030 target becomes much harder to meet.

What does the new tax mean for EV owners?

The change ends the long standing VED exemption for EVs. For many drivers, the cost will remain relatively low. An EV driver travelling 8,500 miles a year will pay around £255. This is still lower than the equivalent fuel duty cost for a petrol car.

Motoring groups warn that high mileage drivers will feel the shift more acutely. A driver covering 11,000 miles a year would pay about £330. Rural drivers or those who rely on public charging will face this on top of higher unit electricity costs. Public charging attracts 20 percent VAT, compared with 5 percent for home electricity.

The RAC says the mileage rate keeps EV running costs below petrol or diesel. Yet the organisation observes that the tax could influence behaviour. Simon Williams from the RAC said the government “will be aware that taxing all plug in vehicles per mile from 2028 could slow down the transition to electric vehicles”.

Some EV owners believe the government is moving too soon. They argue that early buyers responded to public signals that EVs would benefit from lower running costs for a long period. The sudden introduction of eVED has created concern that the policy landscape is shifting too often.

Will it affect adoption at a crucial moment?

Industry voices warn that timing matters. The head of Ford UK, Lisa Brankin, told the BBC that EV demand is “really fragile”. She said a new 3 pence per mile charge is “just another brake” on adoption. She also said it is “certainly not the right time” for this type of measure.

The Society of Motor Manufacturers and Traders has been direct. It said the plan is “the wrong measure at the wrong time”. The organisation warned that it will deter buyers and “undermine the ability to meet ZEV mandate targets”.

Energy analysts echo these concerns. John Murray, Head of Electric Vehicles at consultancy LCP Delta, said the measure “poses a serious risk to the industry”. He argued that it “makes the switch to electric vehicles less attractive and risks hardening public scepticism at a critical moment for mass adoption”. He added that the move “cuts directly against the UK’s decarbonisation strategy”.

Sales data supports this cautious tone. EV uptake moved more slowly in 2024 than in previous years. The market needs stability and clarity to grow at the rate required for the late 2020s. A new tax, even at a modest level, adds another decision point for buyers.

Are any measures in place to offset the impact?

Reeves paired the new tax with policies intended to stabilise demand. The Plug in Car Grant will continue to 2030 with £1.3 billion in new funding. The luxury car surcharge threshold for EVs will rise to £50,000. This removes the extra cost on many mid market models.

These measures aim to make EVs more attractive for a wider range of buyers. They target the middle of the market, where price sensitivity is significant.

Motoring groups say more needs to be done. The RAC and the AA both highlight the VAT difference between home and public charging. They argue that a fair tax system must address this gap. Steve Gooding, Director of the RAC Foundation, said the government needs to “address how to cut the cost of public charging for the millions who do not have home charging”.

Campaign for Better Transport supports using a distance charge as part of a broader reform. Chief Executive Ben Plowden said EV drivers could be charged a simple per mile rate “set at a level designed to keep electric vehicles attractive relative to more polluting vehicles”. He added that the organisation’s research has found “high levels of support with the public” for a fair system.

Why move to pay per mile now?

Fuel duty has been a central source of road funding for decades. As engines become more efficient and EVs become more common, fuel duty revenue falls. The OBR warned that without reform the UK faces an “under resourced and congested future”.

The government argues that eVED helps preserve a stable and fair funding base. It also says that EV drivers should contribute because petrol and diesel drivers still pay fuel duty.

Distance based charging links road use directly to payment. Officials say this reflects actual behaviour on the network. It also follows international trends.

How is fairness built into the new system?

Reeves says fairness comes from proportionality. The 3 pence per mile rate is around half the effective cost paid by petrol drivers through fuel duty. This preserves the running cost benefit of driving electric.

The system does not vary charges by location or time of day. Officials say the aim is stability, not congestion management. This distinguishes eVED from urban road pricing schemes.

Annual odometer checks limit the risk of under reporting. This protects the integrity of the system while preserving privacy.

Is the UK moving toward wider road pricing?

The shift to eVED may be the first step in a broader reform of motoring tax. Officials say the current plan is not a precursor to full national road pricing. Yet analysts note that the logic behind eVED could support a more extensive system in future.

For now, the UK is starting with EVs and plug in hybrids. This differs from several international models that tax all vehicles by distance. The government argues that EVs currently pay very little towards road funding. Therefore, placing them within a distance system first is a logical next step.

How do other countries approach pay per mile?

Iceland

Iceland introduced a distance based fee for electric cars in 2023. The rate is six Icelandic krona per kilometre. That is about five pence per mile. Drivers report mileage online and are billed monthly. The government said the system ensures EV drivers “hold financial responsibility for road maintenance”. Fuel powered cars continue to pay fuel tax.

Netherlands

The Netherlands will adopt a universal per kilometre system in 2030. It will replace the annual motor tax and the one off purchase tax. All cars, including EVs, will pay. Drivers who drive more will pay more. The expected rate is seven to eight euro cents per kilometre. That is about ten to eleven pence per mile.

Dutch officials say the system taxes use rather than ownership. They are considering adjustments by vehicle type or weight. Policymakers say rules may need design elements that “keep electric vehicles attractive”. The system will use odometer readings rather than live tracking.

New Zealand

New Zealand has used a distance based system for decades. The Road User Charge applies to vehicles that do not pay petrol tax. EVs were exempt until April 2024. Electric cars now pay 76 New Zealand dollars per thousand kilometres. That is about 3.7 pence per mile. Plug in hybrids pay half that amount.

Drivers buy licences in blocks and provide odometer readings during safety checks. New Zealand shows that a simple system can work at national scale. It also demonstrates that EVs can integrate smoothly into an established tax framework.

United States

Several US states are running pilots. Oregon has a voluntary scheme for EVs and high efficiency cars. Drivers pay between 1.8 and 2.3 cents per mile. They use GPS devices or odometer checks. Uptake is low, but Oregon plans to make the system mandatory for new EVs by 2027. Other states have similar voluntary programmes. The focus is on replacing lost fuel tax revenues.

What does the global picture show?

Many countries face the same challenge. Fuel taxes are declining. Road use is climbing. Governments need new forms of funding. Distance based charges offer a clear and predictable link between use and revenue.

Each country has chosen a different model. Iceland focused only on EVs. New Zealand built a universal structure. The Netherlands is moving to an all vehicle system. The UK is taking a phased approach that begins with EVs and plug-in hybrids.

An experiment to watch

With this announcement, the UK has entered a new phase of motoring taxation. The introduction of pay per mile charges for electric and plug in hybrid cars is a major policy shift. It changes the economics of EV ownership. It fills a growing funding gap. It also carries risks. The UK hopes it can balance fairness, simplicity and continued EV adoption.

Other countries will keep a close eye on the UK experience. This is an experiment that the world will be watching and which affects the whole motor industry.