Chancellor Rachel Reeves is weighing plans to introduce a pay-per-mile tax on electric vehicles (EVs) as part of her upcoming Budget on 26 November. The proposal, which could generate hundreds of millions of pounds a year, aims to offset declining fuel duty revenues as Britain accelerates its shift to greener transport.
Under the plan, EV drivers would pay around 3p per mile, adding roughly £250 a year to average running costs. The new duty would complement existing road taxes, which electric vehicle owners have been subject to since April. Government officials said the measure is designed to make motoring taxes “fairer for all drivers.”
A Treasury spokesperson noted that while petrol and diesel motorists currently contribute about £600 a year in fuel duty, electric vehicle users pay none. “Fuel duty covers petrol and diesel, but there’s no equivalent for electric vehicles,” the spokesperson said. “We want a fairer system for all drivers.”
The charge is being explored as part of efforts to close a £20–30 billion fiscal shortfall over the course of the Parliament. According to The Daily Telegraph, which first reported the proposal, the scheme could be implemented in 2028 following a public consultation.
By that time, an estimated four million Britons will own electric cars or vans, according to the Society of Motor Manufacturers and Traders (SMMT). The trade body, however, warned that introducing such a measure now could slow the UK’s transition to cleaner transport. “We recognise the need for a new approach to motoring taxes,” the SMMT said, “but at such a pivotal moment in the UK’s EV transition, this would be entirely the wrong measure at the wrong time.”
Industry leaders echoed those concerns. Jon Lawes, managing director at Novuna Vehicle Solutions, said that while a fairer tax structure was inevitable, affordability and infrastructure should remain the government’s main focus. “The cost of EVs and charging availability remain major barriers,” he said. “The government must accelerate charger rollout, extend grants and strengthen incentives for used EVs.”
The government has already committed £4 billion to supporting the electric vehicle sector, including grants of up to £3,750 per vehicle. Yet analysts estimate the Treasury could lose more than £25 billion a year in fuel duty revenues by the early 2030s as combustion engine vehicles decline.
Experts say a pay-per-mile system would mark a major change in transport taxation, replacing fuel-based levies with usage-based charges. Groups such as the Campaign for Better Transport and the Tony Blair Institute have both advocated for road pricing, suggesting rates between 1p and 4p per mile depending on vehicle type.
Despite the potential new tax, research by the Energy and Climate Intelligence Unit indicates that EVs would still be around £1,000 cheaper per year to operate than petrol cars. Colin Walker, the unit’s head of transport, said the timing of the proposal was significant. “This comes shortly after the government relaxed its EV sales targets, allowing more hybrids on the road that burn far more fuel than advertised,” he said.
As Reeves finalises her Budget, the proposal highlights a growing dilemma for the government: how to maintain fiscal stability while supporting Britain’s net-zero ambitions and ensuring the public remains committed to cleaner transport.
