Labour Pay Per Mile Tax Plans Risk Stalling Electric Vehicle Growth

The UK Government is at a crossroads regarding the future of electric vehicles with new proposals for a pay per mile tax expected to be announced in the upcoming Budget. Rachel Reeves, the Chancellor, is considering the introduction of a 3p per mile levy on electric vehicles starting in 2028. This initiative comes despite a recently introduced grant of up to £3,750 for qualifying electric cars, issued just months prior to these talks. The rationale is to restore fairness, as traditional petrol car drivers pay roughly £600 annually in fuel duty, while EV owners currently pay no such levy.

Industry representatives and advocacy groups, however, have reacted with concern, arguing that the proposed tax could add several hundred pounds to the annual running costs of EV ownership. The Society of Motor Manufacturers and Traders has stated that this move may discourage both new and used car buyers from transitioning to electric vehicles, at a time when EV sales are showing steady, albeit still modest, growth. Figures indicate EVs now comprise just 4 percent of used car sales, rising from 2.8 percent a year ago, with used car transactions representing three quarters of total sales activity.

There is a prevailing sentiment among industry insiders that governmental policy remains inconsistent. Critics argue the approach of offering upfront purchase incentives only to reclaim them through ongoing taxation reveals a fragmented strategy. Additionally, proposals to impose business rates on parking bays with EV charging points are threatening to raise charging costs and risk discouraging planned investments, as industry leaders warn of negative effects worth billions of pounds.

Some policy experts contend that the decline in fuel duty revenues necessitates exploration of alternative tax structures such as the pay per mile scheme. Introducing the scheme now might be politically advantageous, spreading the adjustment period before EV ownership is widespread. However, comparisons to international experiences, such as New Zealand where similar taxes accompanied a sharp drop in EV demand, suggest that the impact on consumer confidence could be significant and possibly counterproductive.

Many in the EV sector advocate for a more measured transition, calling for a longer lead time to allow buyers and industry to adjust. They emphasise the need for clarity and predictability in policy, warning that rushed or unclear tax changes could undermine both investment and public trust at a pivotal point in the shift toward cleaner transport.

The counterargument from policymakers focuses on the imperative to balance public finances and ensure all drivers contribute fairly to infrastructure costs. The Government has stressed its aim to create a fair system that backs the zero emissions transition, and claims consultation remains ongoing. However, unless the plan is coordinated coherently with existing measures and broader market signals, the risk of stalling EV momentum cannot be dismissed. Stakeholders across the automotive sector await the Chancellor’s formal announcement keen to see whether a more unified strategy will emerge or if mixed signals will persist.