Rachel Reeves’ Electric Car Tax: What the 3p-Per-Mile EV Levy Could Mean for UK Drivers

In the latest Budget discussions, UK Chancellor Rachel Reeves is reportedly considering the introduction of a new pay-per-mile tax on electric vehicles (EVs) — a move that could significantly alter the economics of owning an electric car in the UK.

What is being proposed?

According to media reports, Reeves is exploring a “3p-per-mile” levy on EVs from around 2028 onward. The Guardian+4Financial Times+4The Standard+4 The levy would sit alongside existing charges such as Vehicle Excise Duty (VED) and would aim to replace falling fuel-duty revenues as drivers shift away from petrol and diesel. The Standard+2The Guardian+2 Estimates suggest the charge could cost the average EV driver around £250-£300 a year, based on a typical mileage of about 8,900 miles. The Independent+1 Government sources say the measure is intended to make the road tax system “fairer” for all drivers, since conventional car drivers currently pay fuel duty at pumps, while EV drivers pay little or none. The Standard+1

Why now?

As more drivers switch to electric vehicles, the Treasury faces a growing “black hole” in motor tax revenue. For example, petrol and diesel fuel duty currently raises around £24.4 billion annually; with EV uptake rising, an estimated £12 billion per year could be lost by 2040 unless new mechanisms are introduced. The Independent+1 Reeves and her colleagues argue that the tax base must evolve in line with changing vehicle technology and infrastructure.

Potential advantages of the proposal

• Revenue for infrastructure: The proposed scheme could help raise an additional £1.8 billion by 2031, according to early estimates. The Independent+1
• Perceived fairness: By charging EV drivers on miles travelled, the system aims to treat all motorists more equally regardless of fuel type. The Standard+1
• Stable funding for roads: With fuel duty revenues declining, a mileage-based tax could provide a more predictable source of funding for road maintenance and upgrades.

Criticisms and risks

• Impact on EV uptake: Industry bodies like the Society of Motor Manufacturers & Traders (SMMT) argue that introducing a mileage tax at this pivotal moment could undermine consumer confidence and slow down the transition to zero-emission vehicles. The Times+1
• Affordability concerns: Some motorists warn that adding a new tax layer may hit those who opted for EVs partly because of lower running costs. GB News
• Implementation challenges: Critics point out that estimating annual mileage in advance, tracking miles, and adjusting payments raise administrative and privacy questions. The Standard
• Mixed signals: Some argue that taxing EVs could send conflicting messages given ongoing government-backed incentives to encourage zero-emission vehicle adoption. Financial Times

What it means for motorists and the industry

If the scheme goes ahead as proposed:

• EV drivers should start budgeting for an additional cost of around £250 per year from 2028.
• Hybrid vehicle owners may face a lower rate, but will similarly be impacted. The Independent
• The vehicle manufacturing and dealership sectors may face headwinds if potential buyers delay EV purchase decisions due to increased running costs.
• Government expectations that EV ownership remains cheaper to run than petrol or diesel cars remain plausible; even with a 3p-per-mile tax, an EV driver may still save around £1,000 annually compared to petrol equivalents under certain mileage patterns. The Guardian

Conclusion

The potential introduction of a mileage-based tax on electric vehicles by Chancellor Rachel Reeves marks a significant policy shift. While it aims to address the fiscal shortfall resulting from declining fuel duty, it also raises questions about timing and effect on EV uptake. For motorists, the pending change signals that the running-cost advantages of EV ownership may be set to evolve. Whether the measure will bolster fairness or hamper the green transition depends on how it is designed, communicated and implemented.