Finance
UK to levy pay-for-mile tax on electric cars
Published by Global Banking and Finance Review
Posted on November 26, 2025
2 min readLast updated: January 20, 2026
Quick Summary
The UK will levy a pay-per-mile tax on electric cars from 2028 to offset lost fuel duty revenue. The tax is expected to generate significant revenue but may suppress EV demand.
UK to Implement Pay-Per-Mile Tax on Electric Cars by 2028
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)
Key Takeaways
- •UK to introduce a pay-per-mile tax on electric vehicles from 2028.
- •The tax aims to offset lost fuel duty revenue as drivers switch to EVs.
- •The tax is set at 3 pence per mile for electric cars.
- •Expected to generate 1.1 billion pounds in the first year.
- •Industry concerns about the tax suppressing demand for EVs.
Frequently Asked Questions about UK to levy pay-for-mile tax on electric cars
1What is a pay-per-mile tax?
A pay-per-mile tax is a fee charged to drivers based on the number of miles they drive, aimed at generating revenue, especially as fuel duty decreases with the rise of electric vehicles.
2What are electric vehicles?
Electric vehicles (EVs) are cars that are powered by electric motors instead of traditional internal combustion engines, using rechargeable batteries to store energy.
3What are plug-in hybrid vehicles?
Plug-in hybrid vehicles are cars that combine a traditional internal combustion engine with an electric motor, allowing for both electric-only and hybrid driving modes.
