By Dominic Chopping
The U.K. government's plan for a new pay-per-mile tax on electric and hybrid vehicles threatens to weaken demand just as the auto industry works toward ambitious zero-emission vehicle sales targets, trade bodies and manufacturers have warned.
The country's treasury chief Rachel Reeves on Wednesday outlined a series of tax hikes in her U.K. budget statement, including charging electric-vehicle drivers 3 pence (4 cents) a mile from April 2028, while hybrid-vehicle drivers will pay 1.5 pence a mile. These rates will increase each year with inflation.
The U.K. government currently applies a fuel duty to drivers of gas and diesel-powered vehicles through a tax added to the price of the fuel. But government forecasts expect annual revenue generated from this tax to decline to around 12 billion pounds ($15.89 billion), half of current levels, by the 2030s as the transition away from combustion engines continues.
According to the government's independent forecaster, the Office for Budget Responsibility, the new pay-per-mile tax will offset around a quarter of the 0.6% of gross domestic product in revenue that is expected to be lost from fuel duty by 2050. It said a driver traveling 8,500 miles in an electric car in 2028-29 can expect to pay 255 pounds--roughly half the rate that drivers of gas and diesel vehicles pay in fuel tax.
"Introducing additional costs for EV drivers risks undermining consumer confidence at a critical moment for the electric vehicle market," said Sue Robinson, chief executive of the National Franchised Dealers Association, a trade body representing franchised car and commercial-vehicle dealers across the U.K.
"The OBR estimate that this tax will result in 440,000 fewer EV sales, harming franchised dealers' ability to sell and reach zero-emission vehicle mandate targets," Robinson said.
Under current U.K. rules, zero-emission vehicles must make up at least 28% of overall sales this year, with that target rising to 80% by the end of the decade. Recent data indicate that sales are tracking below target with industry body the Society of Motor Manufacturers and Traders forecasting that battery-electric vehicles will account for 23% of new car sales this year.
In addition to the pay-per-mile plans, the government outlined plans to lift the price threshold at which an annual tax on expensive EVs kicks in. Car buyers will only pay the tax on cars with a list price of more than 50,000 pounds, from the current 40,000 pounds. The government will also prolong its electric-car grant, which offers discounts of up to 3,750 pounds off the list price of certain eligible EVs, while further money has been granted to accelerate the roll-out of public charging infrastructure.
SMMT Chief Executive Officer Mike Hawes said the changes to the expensive-car supplement, electric-car grant and support for charging infrastructure are welcome, but won't offset the impact of introducing the new EV pay-per-mile tax. "The wrong measure at the wrong time," Hawes said.
Manufacturers have invested to bring more than 150 EV models to market, but the pressure to deliver ambitious zero-emission vehicle sales targets while maintaining industry viability is intense.
"With even the OBR warning this new tax will undermine demand, government must work with industry to reduce the cost of compliance and protect the U.K.'s investment appeal," he added.
A spokesperson for Volkswagen Group U.K. said the company is still reviewing the finer details of the announcements, but that it welcomes automotive measures that encourage EV uptake, such as additional funding for the electric-car grant, charging support, and changes to the expensive-car supplement.
"However, the proposed per mile charging on electric vehicles is, as the Society of Motor Manufacturers and Traders has said, the wrong measure at the wrong time," the spokesperson said.
In the current critical battery-electric vehicle ramp-up phase it risks deterring customers from making the switch to e-mobility, the spokesperson added.
"Volkswagen Group has introduced over 20 battery electric vehicle models in the U.K. market, with more to come, and the successful transition to an electrified future is crucial for the decarbonization of road transport."
Write to Dominic Chopping at dominic.chopping@wsj.com
(END) Dow Jones Newswires
November 27, 2025 07:28 ET (12:28 GMT)
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