The UK's plan to introduce a mileage-based tax for electric vehicles (EVs) has drawn criticism from industry participants, warning it could slow adoption and complicate compliance with zero-emission vehicle (ZEV) targets.
The Budget confirmed a pay-per-mile levy of 3p for battery EVs (BEVs) and 1.5p for plug-in hybrids in 2028–29, alongside £1.5bn ($1.98bn) for grants and charging infrastructure.
The government said the measure would create a "fairer system" as it projects fuel duty revenues will fall to £12bn/yr "by the 2030s" from about £24bn in FY24. But industry participants argue the timing risks undermining confidence in electrification just months after the government revived purchase incentives.
"We need more carrot and less stick if we're serious about the electric transition," AutoTrader's commercial director, Ian Plummer, told Argus. "The chancellor clearly needs to raise revenue but if she wants to encourage EV adoption, she should think extremely carefully before introducing pay-per-mile charging for EVs."
Anything making EVs harder to sell will either force carmakers to spend more on incentives or buy credits to plug ZEV gaps, Plummer added, potentially forcing carmakers to withhold internal combustion engine sales to remain compliant, impacting their bottom line.
"Instead of delivering clarity by continuing to build on the positive boost to EV uptake given by the Electric Car Grant, we've got change and confusion," Plummer said.
Carmakers may struggle to hit ZEV targets
While the tax may appear to affect consumers, carmakers are already required to meet quotas for BEV sales under the ZEV mandate — set at 28pc market share this year but effectively about 23pc after allowances.
The new tax may force carmakers to absorb discounts to meet targets, rather than consumers.
Carmakers already have "zero incentive" to go beyond the mandate because any surplus sales can be banked and carried forward, Stuart Masson, founder of consumer advice website The Car Expert, told Argus.
"They will hit the target with pretty much zero cars to spare, carrying over any extra sales into next year when the target jumps to 33pc," he said.
But Masson warned that layering on a mileage tax adds complexity at a time when the industry needs stability. "The pay-per-mile tax will be a serious deterrent, as it adds a potentially significant inconvenience to customers," he said, describing it as a bigger negative than recent road tax changes and the luxury car tax threshold creep.
While loopholes still allowing credit trading and hybrid offsets remain, they will tighten over time, Masson added, making compliance harder. "Some carmakers will find it much easier than others, but some will definitely struggle," he said.
Charging operators, meanwhile, welcomed the fresh support for new car sales and charge points but echoed concerns over equity of the tax.
"Extending the Electric Car Grant and investing an additional £200mn in charge points will help more drivers make the switch and improve access to charging, particularly for those without driveways," charging network InstaVolt's chief executive, Delvin Lane, said.
But the pay-per-mile levy "risks putting off drivers" who lack home charging, Lane added, given the 20pc VAT on public charging compared with 5pc at home, disproportionately affecting rural and low-income commuters.
