The government’s looming Budget announcement on 26 November 2025 is set to reshape how millions of British drivers fund their journeys. Chancellor Rachel Reeves is reportedly preparing to introduce a pay-per-mile tax scheme for electric vehicles—a move that signals the end of an era of cheap motoring for EV owners and addresses a pressing fiscal challenge facing the nation’s finances.
The Core Issue: Fuel Duty Revenue Disappearing
For decades, the UK government has relied on fuel duty to fund road maintenance and infrastructure. When motorists fill their tanks, they pay a substantial tax that flows directly into the Treasury’s coffers. This system generated approximately £24 billion to £25 billion annually as of 2023.
However, this revenue stream is rapidly evaporating. The government’s commitment to phasing out petrol and diesel vehicles by 2035 means fewer traditional cars on the road. Electric vehicles, which were previously exempt from vehicle excise duty (VED), represented a growing share of new registrations—rising from around 1.6 million vehicles to an expected six million by 2028.
The mathematics are stark. As drivers abandon combustion engines for electric power, fuel duty revenues plummet whilst the Treasury loses a critical income source for maintaining roads and supporting transport infrastructure. This fiscal challenge has forced policymakers to rethink the entire approach to road taxation.
What Is the Pay-Per-Mile Proposal?
The proposed system, nicknamed “VED+” by government officials, would charge electric vehicle owners 3p per mile for every journey they make. This charge would sit on top of the £195 annual vehicle excise duty that EV owners already pay following the April 2025 changes that ended EV exemptions from VED.
The scheme appears designed with simplicity in mind. Rather than implementing complex GPS tracking or telematics systems, drivers would estimate their annual mileage and pay the charge alongside their standard VED. If drivers travel fewer miles than estimated, unused credits would carry over to the following year. Conversely, exceeding mileage estimates would require additional payment.
According to government calculations, an average electric vehicle driver covering 8,333 miles annually would face approximately £250 in additional charges per year. For those driving 10,000 miles, the cost rises to £300 annually. Higher-mileage drivers—such as delivery personnel or commuters covering 15,000 miles—would pay around £450 extra per year.
When Could This Change Take Effect?
If announced in the Budget as expected, the pay-per-mile scheme wouldn’t immediately affect drivers. The government has planned a three-year consultation and implementation window, with the proposal taking effect from April 2028.
This extended timeline provides certainty for consumers and businesses. Anyone purchasing an electric vehicle through salary sacrifice schemes in 2025, 2026, or 2027 could complete their entire lease period before the new tax comes into force. However, it also means business planning and fleet management must account for this impending change.
Who Else Might Be Affected?
Hybrid vehicles present a complex picture. Plug-in hybrids would likely face the pay-per-mile charge as well, though at a lower rate than fully electric cars. This creates an unusual situation where plug-in hybrid owners might pay both fuel duty when using petrol and the mileage charge when using electric power—effectively facing a “double charge.”
The government hasn’t confirmed whether electric vans would be included, though early reports suggest commercial vehicles might be excluded. This distinction could have major implications for delivery businesses and logistics operators who have invested heavily in electric vehicles.
The Financial Reality for Different Driver Groups
The impact of this tax change varies dramatically depending on individual circumstances and how often drivers use their vehicles.
For urban dwellers who use their cars sparingly—perhaps 3,000 miles annually—the pay-per-mile charge would amount to just £90 per year, compared to the £195 VED. These drivers would effectively pay less tax than under the current system, making the scheme appear fair.
Rural residents and commuters represent a different case entirely. Someone driving 15,000 miles annually for work or family obligations would pay £450 per year, plus the £195 VED, totalling £645—a significant burden that rivals what some petrol vehicle owners pay through fuel duty.
Professional drivers face even steeper costs. Taxi drivers, private hire operators, and delivery drivers covering 30,000 miles annually could face £900 in pay-per-mile charges alone, plus VED. This threatens the economic case for switching to electric vehicles for professional operators who were early adopters seeking to cut long-term running costs.
Comparing the Burden: Are Electric Vehicles Still Cheaper?
Despite these new charges, electric vehicles remain substantially cheaper to run than petrol or diesel equivalents when considering the complete cost picture.
Petrol and diesel drivers pay approximately 7p per mile through fuel duty and VAT, equating to around £600 annually on average driving. The proposed 3p per mile charge for EV owners represents less than half this burden. Even accounting for the additional taxation, an electric vehicle driver would pay significantly less over a year’s motoring than someone driving a traditional combustion engine vehicle.
Furthermore, electricity remains substantially cheaper than petrol or diesel. Home charging an electric vehicle costs approximately 8p per mile, whilst public rapid charging reaches 14p per mile. Compare this to petrol prices fluctuating around 130p per litre, and the savings become apparent.
Company car drivers benefit from exceptional Benefit-in-Kind (BiK) taxation rates. Electric vehicles attract just 3% BiK, compared to up to 37% for high-emission petrol cars. This rate is locked in place through 2029, providing substantial tax advantages that far outweigh proposed mileage charges.
Why the Government Believes This Approach Is Fair
Treasury officials argue that the pay-per-mile system represents genuine fairness between road users. Currently, all drivers—regardless of usage—pay a flat VED rate. A driver using their vehicle 3,000 miles annually pays the same as someone covering 30,000 miles, which seems illogical.
The government position holds that introducing mileage-based charging aligns tax liability with actual road usage. Those who depend most on roads pay more, whilst lighter users pay less. This principle mirrors how motorists already pay implicitly through fuel consumption in traditional vehicles.
The Treasury also stresses ongoing support for the electric vehicle transition. The government invested £4 billion in EV support, including grants of up to £3,750 per eligible vehicle to reduce upfront costs. Continuing these incentives alongside introducing mileage taxation attempts to square the circle—generating necessary revenue whilst encouraging the net-zero transition.
Industry Concerns and Opposition
The proposal has sparked considerable criticism from major industry bodies and motoring organisations. The Society of Motor Manufacturers and Traders (SMMT) described the move as “entirely the wrong measure at the wrong time,” arguing it could deter consumers from purchasing electric vehicles precisely when the industry faces challenging zero-emission vehicle mandates requiring increasing EV sales percentages.
The AA has warned that poorly designed mileage taxation could become a “poll tax on wheels,” unfairly burdening those without alternatives. Rural residents, professional drivers, and families in areas with inadequate public transport have limited choices—they must drive or face social and economic exclusion. Taxing that necessity seems punitive rather than fair.
Environmental campaigners also express concern that introducing additional taxation might slow EV adoption at a critical moment. If potential customers hesitate over combined costs of higher upfront prices (compared to petrol cars) and future mileage taxes, the government’s net-zero timeline could suffer irreversible delay.
Private hire and taxi organisations have warned that high-mileage drivers could find the economic case for electric vehicles disappears entirely. Early adopters in these sectors specifically chose EVs to reduce long-term operating costs. Introducing charges approaching £900 annually would eliminate that advantage, creating resentment and potentially reversing the progress made in transitioning commercial fleets to zero-emission vehicles.
Addressing Privacy Concerns
One significant concern surrounding mileage-based taxation involves privacy and government surveillance. If the Treasury implements real-time GPS tracking to monitor every journey, civil liberties organisations have raised valid objections about state intrusion into personal movements.
The government has attempted to address these concerns by avoiding complex telematics systems. The proposed “estimate and reconcile” model means drivers simply declare anticipated annual mileage and pay accordingly. Verification might occur through MOT odometer readings or voluntary self-declaration, avoiding continuous electronic monitoring.
However, critics remain sceptical about whether this approach would withstand long-term fiscal pressures. Once the infrastructure for mileage taxation exists, future governments might implement more intrusive tracking mechanisms to prevent fraud or increase revenues.
What About Petrol and Diesel Drivers?
A notable aspect of the current proposal involves its narrow focus on electric and hybrid vehicles. Petrol and diesel drivers would continue paying fuel duty, which generates billions annually for the Treasury.
The government frames this distinction as temporary. Eventually, as combustion engines disappear from roads and fuel duty becomes irrelevant, a broader road pricing system might apply to all remaining vehicles. However, this future remains uncertain and politically contentious, creating a perception that EV owners bear disproportionate taxation burdens.
Some transport experts argue for replacing fuel duty entirely with a comprehensive pay-per-mile system applying equally to all vehicles. This approach would shift the debate from targeted EV taxation to genuine road pricing reform. However, the political difficulty of reframing taxation for traditional vehicles makes piecemeal implementation—beginning with EVs—more likely despite its apparent inequity.
The Consultation Process and Timeline
Following the Budget announcement, the government plans a consultation period lasting several months. This process would gather feedback from industry bodies, consumer organisations, driver representatives, and the general public about implementation details, technical feasibility, and potential adjustments.
The consultation will likely address numerous outstanding questions: How would mileage estimates be challenged or corrected? Would discrepancies be penalised? How would the system account for non-driving periods when vehicles sit unused? Should disabled drivers or those in remote areas receive exemptions or discounts? What about people changing circumstances mid-year?
After consultation closes, the government would publish its response and refined policy details. Parliament would then need to pass enabling legislation, likely during 2027. The system would come into effect from April 2028, providing early warning for vehicle purchasers and lenders.
International Precedents and Lessons
The UK is not pioneering mileage-based taxation. New Zealand introduced a similar scheme for electric vehicles years earlier, providing valuable lessons. The system works in practice but requires clear communication and robust administration to prevent fraud and maintain public confidence.
Several European countries have piloted road pricing schemes, though most focus on congestion charging in urban areas or heavy goods vehicles rather than widespread consumer taxation. The Netherlands discussed extending mileage taxation but hasn’t implemented it. The US has piloted pay-per-mile systems in various states, generally finding them technically feasible but politically challenging.
These international examples suggest that successful implementation depends on transparency, gradual phase-in, and genuine consultation with affected groups. Rushing the policy or appearing to target specific motorists invites backlash and legal challenges.
Will Electric Vehicles Still Make Financial Sense?
Despite the proposed taxation increase, electric vehicles would remain financially competitive compared to traditional vehicles for most drivers.
Salary sacrifice schemes continue offering extraordinary value. Even accounting for additional pay-per-mile charges, salary sacrifice EV schemes deliver 20-50% savings compared to personal leasing equivalent vehicles. Combined with £600-£1,500 annual fuel cost savings, total ownership costs remain substantially lower than petrol or diesel alternatives.
For buyers purchasing vehicles outright rather than through salary sacrifice, the economics shift less favourably. A typical £25,000 electric vehicle becomes more expensive to own and operate when you add higher upfront costs, annual VED, and the proposed mileage charge. However, most drivers would still save money compared to equivalent petrol cars over a vehicle’s lifecycle.
High-mileage professional drivers face the starkest trade-offs. The £250-£900 annual mileage charge could prove decisive for those making tight economic calculations. Some drivers might rationally decide that the long-term cost of an electric vehicle, including mileage taxation, exceeds the benefit compared to traditional vehicles.
The Broader Road Pricing Question
This proposal represents the first concrete step toward comprehensive UK road pricing. Think tanks including Policy Exchange have argued that introducing variable road pricing—charging drivers differently based on location, time of day, and traffic congestion—could deliver £15-30 billion annually in economic benefits whilst reducing congestion and air pollution.
If the government successfully implements mileage taxation for electric vehicles, the infrastructure and procedures created could easily extend to all vehicles and incorporate congestion charging elements. London’s congestion charging zone demonstrates the political feasibility of location-based road pricing, despite ongoing protests.
For consumers and businesses planning ahead, recognising that comprehensive road pricing seems inevitable helps contextualise the current proposal. The government faces genuine fiscal pressures as vehicle taxation must evolve with the energy transition. Accept pay-per-mile taxation now, and it becomes normalised infrastructure for more extensive future schemes.
Key Takeaways and What Drivers Should Consider
The proposed 3p per-mile tax represents a significant shift in how the UK funds roads and infrastructure. Whilst generating necessary revenue to replace declining fuel duty, the scheme creates winners and losers depending on driving patterns and circumstances.
Light-use drivers benefit from mileage-based taxation replacing fixed VED. Rural residents and high-mileage professionals face genuine cost increases despite remaining cheaper than traditional vehicles overall.
The consultation process will likely see substantial debate and potential adjustments to the headline proposal. Exemptions, reductions, or hybrid pricing structures might emerge from stakeholder feedback. However, the fundamental direction—requiring electric vehicle drivers to pay based on mileage—appears firm.
For consumers considering vehicle purchases before 2028, the three-year grace period provides certainty. Those entering salary sacrifice schemes lock in exceptional tax advantages that the mileage charge won’t significantly erode. However, timing matters—purchasing decisions after consultation concludes in 2026 should factor known mileage costs into total cost of ownership calculations.
Ultimately, the pay-per-mile proposal reflects an uncomfortable reality: someone must fund road infrastructure as fuel duty declines, and transitioning to zero-emission vehicles whilst maintaining essential services requires difficult choices about taxation. Whether the specific proposal achieves genuine fairness or becomes the “poll tax on wheels” critics fear depends largely on consultation outcomes and implementation details yet to be determined.
Frequently Asked Questions
What exactly is the proposed pay-per-mile tax?
The government is planning to introduce a mileage-based charge of 3p per mile for electric vehicle owners, in addition to the existing £195 annual vehicle excise duty. Known informally as “VED+”, this system would apply from 2028 following consultation. Rather than using GPS tracking, drivers would estimate annual mileage and pay accordingly, with adjustments made if actual usage differs significantly.
How much extra would I pay under this scheme?
Costs depend entirely on your annual mileage. An average driver covering 8,333 miles would pay approximately £250 annually. Someone driving 10,000 miles faces £300 extra per year, whilst high-mileage drivers covering 15,000 miles would pay around £450. These charges apply on top of standard VED, so total annual road tax could reach £445-£645 depending on usage.
Would hybrid vehicles be affected?
Yes, plug-in hybrid owners would likely face the pay-per-mile tax as well, though at a lower rate than fully electric vehicles. The precise rate for hybrids hasn’t been confirmed and will emerge during the consultation period. This creates a potential “double charge” for plug-in hybrid drivers who pay fuel duty when using petrol and mileage charges when running on electric power.
When would this actually start?
If announced in the November 2025 Budget as expected, implementation wouldn’t occur until April 2028 following a public consultation period. This three-year timeline provides certainty for vehicle purchasers and businesses, allowing those entering salary sacrifice schemes to complete lease periods before the tax takes effect.
Would electric vehicles still be cheaper to run than petrol cars?
Despite the additional charge, electric vehicles would remain substantially cheaper than petrol or diesel equivalents for most drivers. Petrol drivers currently pay approximately 7p per mile through fuel duty, compared to the proposed 3p for EV owners. Additionally, electricity costs less than petrol per mile, and company car drivers enjoy exceptional Benefit-in-Kind tax rates that far outweigh mileage charges.
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