Drivers using electric vehicles (EVs) could face a new pay-per-mile tax in Rachel Reeves's Budget, according to reports. The chancellor is considering a plan that will see drivers of electric cars charged 3p per mile.
The tax, which it is thought could be announced in her fiscal statement on 26 November, would generate billions of pounds and help Ms Reeves to raise the extra revenue needed to balance the nation’s books.
The Telegraph said that the scheme is set to kick in from 2028, by which time as many as six million people will be driving electric cars.
The 3p charge would equate to around £12 on a journey from London to Edinburgh, according to The Telegraph, which also reported that drivers will have to estimate their own usage rather than it being tracked electronically.
It comes as the Treasury is facing falling fuel duty revenue as more people make the switch from petrol to electric cars.
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Since April this year, electric cars have been subject to vehicle excise duty, after a change brought in by the Conservative government in 2022.
In 2023, think tank the Resolution Foundation – whose director at the time, Torsten Bell, is now a Treasury minister – recommended that a national pay-per-mile system be introduced that would lead to “EV drivers paying 6p per mile (plus VAT) from 2027”.
The AA has warned that the policy could be seen as a “poll tax on wheels” and urged Ms Reeves to “tread carefully”.
The organisation’s president, Edmund King, said: “Whilst we acknowledge the Treasury is losing fuel duty revenue as drivers go electric, the government has to tread carefully unless their actions slow down the transition to EVs.
The ZEV mandate for 28 per cent of new car sales to be zero-emission this year will not be met, as sales are running at just 22 per cent. We need to see the detail of this proposal to ascertain whether these new taxes will be equitable, or a poll tax on wheels.”
The chancellor has already put the country on notice that sweeping tax rises could be coming this month, saying during an unprecedented pre-Budget address this week that “we will all have to contribute”.
She is facing the prospect of breaking Labour’s manifesto pledge not to increase income tax, national insurance or VAT, and has signalled that she may be willing to break that promise as she warned of “hard choices” ahead.
At the weekend, The Independent revealed that Ms Reeves will face a cabinet backlash if she breaks the pledge to voters.
A number of senior ministers are concerned that breaking the Labour manifesto pledge not to raise income tax, VAT or employee national insurance contributions could prevent any hope of a political recovery, with the party languishing in the polls.
“What those who say we should not stick to that pledge fail to realize is just how important it was in winning the election,” a senior minister said.
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