EVs will be taxed £0.03 per mile from 2028 to recoup lost fuel duty revenue.
Tax projected to generate £1.1 billion in its first year, rising to £1.9 billion by 2030.
OBR estimates the charge could deter 400,000 EV sales amid ZEV mandate pressures.
The UK government will implement a mileage-based road tax for electric and plug-in hybrid vehicles starting in 2028, the Chancellor confirmed during the national budget announcement. The plan includes a rate of £0.03 ($0.056 CDN) per mile for battery electric vehicles and £0.015 ($0.028 CDN) per mile for plug-in hybrids, with rates rising annually in line with inflation.
The Office for Budget Responsibility (OBR) estimates the tax will raise £1.1 billion in its first year (2028–29), growing to nearly £1.9 billion by 2030–31. Based on the UK’s average annual mileage of 8,000 miles, the tax could add £240 (approx. $450 CDN) annually to the cost of operating a battery-electric vehicle.
The measure is intended to address the decline in fuel duty revenue as electric vehicle adoption rises. It follows recent changes such as the introduction of a £195 ($363 CDN) Vehicle Excise Duty (VED) charge for electric vehicles, which came into effect in April and applied to 1.7 million cars.
Analysts expect the new road tax to reduce electric vehicle sales by approximately 400,000 units due to the increased cost of ownership. The tax may disproportionately affect fleet drivers and those who use company-provided EVs, who typically drive longer distances each year.
The announcement comes as automakers face pressure to meet the UK’s Zero Emission Vehicle (ZEV) mandate. The policy requires 28% of new car sales in 2025 to be electric, rising to 80% by 2030. Despite the support from the Electric Car Grant, manufacturers are struggling to meet these targets, with fleet sales accounting for the majority of EV registrations.
While fuel duty remains frozen for combustion engine vehicles, the government plans to begin staged increases in duty from September 2026. This continued freeze may offer short-term relief to internal combustion vehicle drivers, though future increases are expected.
The UK policy seems incredibly opportunistic, a forced cash-grab of sorts, as the 2035 ban on new combustion-engine vehicles remains in place. However, EU policymakers are expected to introduce a package of measures next month aimed at supporting the automotive industry, which could include concessions for synthetic or biofuels.
Source: Piston Heads
