Nearly 18 months ago, WhichEV finalised its analysis suggesting that the UK government might need to introduce something like a 9p per mile charge to compensate for the revenue lost from traditional fuel taxes as the country transitions towards electric mobility. This prediction appears to be materialising, as recent government announcements confirm that a ‘Pay-Per-Mile’ system for EVs is being seriously considered, sparking shock and debate among the public and media. Our earlier headline asked if the Government was considering a new (average) £625 a year road tax for EVs – but was it correct?
A Foreseen Shift in Motoring Taxation
Our original article in early 2023 calculated the financial implications of a complete shift to EVs, highlighting the inevitable shortfall in government revenue once drivers no longer purchase petrol and diesel. With the Treasury heavily reliant on fuel duty and vehicle excise duty, the shift to EVs, while beneficial for the environment, represents a significant financial challenge. We approached the issue from two angles.
From a ‘miles' perspective, the figures were staggering: with 40 million vehicles on UK roads and each car averaging 7,000 miles per year, that totals around 280 billion miles driven annually. Our estimate showed that each vehicle would be expected to contribute around £625 a year under such a scheme. Now, the government’s recent announcements appear to align with this vision, raising concerns over how these new taxes might affect EV adoption. From the ‘per mile' perspective, this is around 9p per mile.
The CPS Report: A Push for Green Motoring Taxes
A report by the Centre for Policy Studies (CPS) adds further weight to this debate. Titled The Future of Driving, the report calls for an overhaul of the UK's motoring tax system, proposing a per-mile charge for Zero Emission Vehicles (ZEVs). The CPS advocates that this system is not just a fiscal response to declining fuel duty revenue but also a way to tackle congestion and improve air quality in cities. The CPS's proposals include offering drivers an annual allocation of tax-free miles, particularly benefiting those in rural areas, where public transport alternatives are limited.
However, the report leaves some questions unanswered. While it promotes fairness, congestion management, and environmental responsibility, it stops short of publishing the exact per-mile rates or providing clarity on how the new revenue stream would be invested. More ‘black holes' in the finances that we should be worried about? Specifically, there is little mention of whether funds from this new tax would contribute to road maintenance or improvements in EV charging infrastructure—both critical issues as EV ownership grows.
A Tax Shift in the Making
What is clear is that the government must address the looming financial gap as the shift to electric vehicles, gains momentum. The report’s call for gradually replacing fuel duty and vehicle excise duty with per-mile charging systems signals the beginning of a broader transformation in how road use is taxed. This shift, while necessary from a fiscal perspective, will undoubtedly prove controversial. Many EV drivers, who were initially incentivised to switch to electric with promises of cheaper running costs, may feel penalised by such measures.
Further concerns arise from public sentiment. Dillon Smith, CPS Energy and Environment Researcher, notes that while the public generally supports cleaner air, privacy concerns around tracking mileage and the actual financial impact of these changes could cause friction. The report does suggest local authorities could use clean air zone funds to support the transition to cleaner vehicles, but how much of this will benefit EV owners remains to be seen.
Something worth considering
For EV drivers, who currently pay no fuel duty, a 9p per mile charge would introduce significant new costs. In contrast, internal combustion engine (ICE) vehicle drivers still pay fuel duty (57.95p per litre) plus VAT, meaning their overall motoring tax could be higher than the proposed per-mile charge for EVs. However, as fuel duty revenues decline with more people switching to EVs, the government is likely to push this system forward
It's possible that there will need to be set ‘Transition Phases' and ‘Exemptions'. The Centre for Policy Studies has suggested the scheme could include an annual allocation of tax-free miles, especially for rural drivers with fewer public transport options. This would offer some relief for those in areas less well-served by infrastructure.
What Next for EV Drivers?
The real-world numbers paint a stark picture: if the government adopts a pay-per-mile scheme similar to the one we predicted, it could add up to hundreds of pounds in extra costs for EV drivers annually. This may seem counterintuitive for a country committed to reducing carbon emissions and incentivising the shift to greener vehicles.
If you move the clock forward by around 20 years, where local/personal electrical generation is common place – then the pay-per-mile option makes sense. The tricky part will be answering the questions, “How does the Government incentivise a move to green motoring – without blowing up the costs by charging way too much for fuel and road tax?”
The government's final decision on how to balance its books, while maintaining its green agenda, will be a fine line to tread. For now, it’s clear that the days of free or low-cost electric motoring may be numbered, with new taxation measures set to ensure that all road users contribute their fair share. At least there can't be too much bleating on the benches at Westminster – given that both sides of the aisle have agreed on the general path for the Road to Zero.
Certainly, organisations like Jato and SMMT have been calling for incentives for may years. Maybe this is something that the Government will need to consider, alongside plans to increase revenue.
In the coming months, it will be crucial to monitor how these proposals evolve and what impact they may have on EV adoption and the broader goals of reducing congestion and air pollution. One thing is certain: the cost of driving is about to change, and EV drivers are now firmly in the government’s sights.
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