UK to levy pay-for-mile tax on electric cars

LONDON (Reuters) -Britain will levy a pay-per-mile tax on electric and plug-in hybrid vehicles from April 2028, finance minister Rachel Reeves said in her budget on Wednesday, to offset some of fuel duty revenue that will be lost as drivers switch to cleaner cars.

The charge will be set at 3 pence per mile for electric cars and 1.5 pence per mile for plug-in hybrids, with an annual total payable with car tax.

"Because all cars contribute to wear and tear on our roads, I will ensure that drivers are taxed according to how much they drive and not just the type of car they own," Reeves said.

Both New Zealand and Iceland have introduced road pricing for EVs, resulting in a drop in demand in the former, while in the latter demand was maintained.

In Britain, an average driver doing 8,000 miles a year will pay 240 pounds, around half the amount in fuel duty paid by an average driver of a petrol or diesel vehicle.

TAX EXPECTED TO BRING IN 1.1 BILLION POUNDS IN FIRST YEAR

The Office for Budget Responsibility, which unexpectedly published details of the budget early, said it was expected to bring in about 1.1 billion pounds in the first year, rising to 1.9 billion pounds by 2030-31.

It said the new charges were intended to offset roughly a quarter of the 0.6% of GDP in revenue expected to be lost from taxes by 2050 due to the shift to electric vehicles.

Auto industry body, the Society of Motor Manufacturers and Traders (SMMT), said the new tax would "suppress demand, discouraging consumers and making ever-tougher sales targets even more costly and challenging to achieve".

"No mitigation measures, including additional grant funding, could offset the message this measure would send consumers," it said.

As part of its push for net-zero greenhouse gas emissions by 2050, Britain wants to phase out sales of new petrol and diesel cars by 2030. But demand for electric cars has stalled with consumers citing high upfront costs as the main barrier.

The government said in July it would offer discounts worth up to 3,750 pounds to buyers of electric cars priced at 37,000 pounds or below.

($1 = 0.7581 pounds)

(Reporting by Catarina Demony and Paul Sandle; Editing by William James and Ed Osmond)