In an effort to plug falling duty revenues, the Government will include plans to introduce a new pay-per-mile tax for electric vehicles (EVs) in the Autumn Budget.
It is suggested that zero-emission cars will attract a new charge of 3 pence per mile in addition to existing road taxes, with the Treasury arguing it is a question of fairness to petrol and diesel drivers.
The new tax, described as ‘VED+’, is expected to apply from April 2028, following a consultation that will be launched after the Budget.
The Telegraph reports EV drivers will be asked to estimate their annual mileage at the start of the year and pay a charge based on the suggested 3p per mile rate.
Vehicles would not be electronically tracked, while it does not mention if vans and other light commercial vehicles (LCVs) would be included.
The Treasury has refused to comment on any speculation around the forthcoming fiscal statement on November 26.
With the leasing industry the registered keeper of millions of EVs, such a move would potentially see them having to administer and pay the charge, pushing up monthly rentals.
For a company car driver with an electric car covering 20,000 miles per year, that would increase costs by £600 per year, while an EV expected to clock-up 12,000 miles would face an additional £360 charge based on 3p per mile.
The increase would also significantly alter total cost of ownership (TCO) calculations for the worse, and comes after EVs were hit with a tax hike in the spring.
From April, newly registered electric and zero-emission vehicles, with a list price exceeding £40,000, became subject to the standard road tax rate of £195, in addition to the ‘expensive car supplement’ of £425 a year.
Fleets have also been struggling to administer the introduction of a second advisory electricity rate (AER) by HMRC, with tax officials accused of causing chaos.
Last year, the Association of Fleet Professionals (AFP) warned that the introduction of a pay-as-you-drive charge for electric vehicles could cause “unforeseen effects”.
This included delaying further fleet adoption of EVs for those fleets and drivers that are covering higher mileages.
Changes also expected to fuel duty
In a pre-Budget speech on Tuesday (November 4), the Chancellor, Rachel Reeves, would not rule out a hike in income tax, VAT or national insurance – a manifesto pledge.
Instead, she said that the “world has thrown more challenges our way”, which required her to make “necessary choices” in the forthcoming fiscal statement on November 26.
She added: “Each of us must do our bit for the security of our country and the brightness of its future.”
Reeves is blaming poor productivity as a result of past Conservative government policies, including Brexit, austerity and cuts to infrastructure spending, high global inflation and the uncertainty through President Donald Trump’s tariffs.
There is already the suggestion that she will not extend the 5p fuel duty cut, which is due to finish in April 2026, and align rates with the retail price index to plug falling revenues as the number of EVs grows.
The Office for Budget Responsibility (OBR) has already factored both these aspects into its forecasts, meaning that without implementation, the Chancellor will need to find an additional £2.7bn from alternative sources.
A 3p per mile rate for EVs would be expected to raise the Treasury an estimated £1.8bn by 2031.
According to a recent survey by Tempcover, more than a fifth (22%) of UK drivers believe the current car tax system is unfair.
When asked what they think would be the fairest way to be charged, almost a third (29%) said it should be based on mileage driven. This was followed by emissions-based charges (18%) and a flat fee for everyone, regardless of use or vehicle (14%).
Fleet industry wants tax changes to fuel growth
Speaking prior to the road pricing report, Paul Holland, managing director for UK/ANZ Fleet at Corpay, including UK brand, Allstar, said: “If the Chancellor is serious about growth, cutting fuel duty is one of the fastest ways to get it.
“Fleets are on the frontline of costs. A penny on duty doesn’t just hit a business or fleet, it feeds straight through into the weekly shop, the cost of a parcel, the price of a pint of milk.
“Keeping the freeze is not some political gesture, it is about stopping inflation from creeping into every corner of the economy.”
He added: “If the Government really wants businesses to switch to greener fuels, then the Autumn Budget is the moment to act. Reward operators who make the greener choice, cut duty on alternatives, and you’ll see momentum fast.
“We need a Budget that recognises fuel duty as a lever for growth and a lever for decarbonisation.”
Logistics UK’s acting chief executive, Kevin Green, has also warned that increasing the cost of doing business for commercial fleets is “counterproductive” and will “put the hand brake on growth and drive inflation”.
The Road Haulage Association (RHA), meanwhile, is calling on the Chancellor to announce an emissions-linked fuel duty rebate to increase uptake of low-carbon fuels, such as hydrotreated vegetable oil (HVO), to ease transition from diesel to net zero fleets.
Mike Thompson, chief operating officer at Leasing Options, believes benefit-in-kind (BIK) tax rates are at least likely to remain secure.
New company car tax rates were published in last year’s Autumn Budget for an additional two years – to 2029/30.
“We anticipate no changes in the upcoming Autumn Budget,” he said. “The Chancellor has demonstrated solid backing by securing benefit-in-kind rates through to 2029.
“Looking ahead, we expect low BIK rates to continue until 2035, providing long-term stability for both employers and employees.”
Peter Golding, CEO at the fleet software specialist, FleetCheck, says that preferential tax treatment had been the prime motivator of electric company car adoption and that negative tax changes could similarly lead to a loss of enthusiasm.
He said: “Last year, the changes in VED made for EVs at the Budget added almost £2,500 to their running costs over a five-year period.
“That was a big shift and any further increases this year should be incremental rather than dramatic.”
Holland says that the Autumn Budget has to be the point where the Government “gets real” about the EV transition.
“Right now, it only half works,” he explained. “Company car drivers have had good incentives, and larger fleets have gone electric fast. But if you’re a small business, particularly running vans, EVs just aren’t practical.
“The ranges are too short, charging takes too long, and when you’re time-poor, such as a builder, a plumber, a delivery driver, then every wasted minute is lost income.
“That’s why vans are the missing piece of the EV puzzle. Without targeted support, smaller businesses in particular will stay on the sidelines.”
Golding says that the lesson from slow adoption of electric vans in recent years was that tax advantages were essential to the process of electrification.
“In the absence of any decisive tax gain, electric vans have failed to generate anywhere near the same kind of momentum as cars,” he added.
The Autumn Budget takes place on November 26.
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