Rachel Reeves considering pay-per-mile tax for electric vehicles in budget

Rachel Reeves is considering plans for a new pay-per-mile tax for electric vehicles to announce in this month’s budget worth an extra £250 a year on average.

Under proposals the chancellor may announce on 26 November, EV drivers would face a new charge of 3p a mile on top of other road taxes to offset falling revenue from petrol and diesel cars as drivers switch to greener options.

A government spokesperson said: “Fuel duty covers petrol and diesel, but there’s no equivalent for electric vehicles. We want a fairer system for all drivers.”

The chancellor will reportedly argue that the EV levy would be fairer, as drivers of petrol or diesel cars pay £600 a year in fuel duty, on average. The move would also help her plug a fiscal hole of between £20bn and £30bn by the end of the parliament.

The scheme would start in 2028 after a consultation, by which time up to 6 million people are expected to be driving electric cars or vans, according to the Daily Telegraph, which first reported on the proposal.

Last year, the Campaign for Better Transport urged Reeves to introduce a pay-per-mile road charging scheme to fill the growing revenue gap. The Tony Blair Institute also advised at the time that Reeves should introduce a simple road pricing system of 1p a mile for cars and vans and 2.5p to 4p for lorries and heavy goods vehicles.

According to the Society of Motor Manufacturers and Traders, there are more than 1.3m electric cars on the road at present.

Amid growing speculation around a new pay-per-mile charge, a third of Britons are looking to get “black box” car insurance that tracks your driving behaviour to cut costs. Middle-aged drivers are the most likely to opt for telematics insurance policies, according to a survey from the insurance company Hastings Direct.

The government spokesperson said £4bn had been invested in support of the transition to electric vehicles, including grants to cut upfront costs by up to £3,750 per eligible vehicle.

“Just as it is right to seek a tax system that fairly funds roads, infrastructure and public services, we will look at further support measures to make owning electric vehicles more convenient and more affordable,” they added.