Pay per mile taxation, also known as road pricing, is a term that’s been echoing around the walls of parliament for years.
With a long-known £40billion-sized fiscal black hole predicted to be left in Treasury coffers as a consequence of the switch to electric cars, MPs have for the last decade have been scrambling for a solution to recoup an imminent loss of motoring revenue.
While forcing the transition to EVs is key to the Government meeting its Net Zero targets – and the reason why sales of new petrol and diesel cars will be banned from the end of this decade – the billions lost in fuel duty and emissions-based vehicle excise duty (VED) is a monumental catch 22 that’s become an increasing cause of concern for the exchequer’s bean counters.
Which makes reports of Chancellor Rachel Reeves announcing pay-per-mile road pricing for EVs in this month’s Autumn Budget Statement somewhat unsurprising.
However, it could also be incredibly poorly timed.
With public demand for battery-powered cars already fragile, manufacturers on the brink of fines for missing government-mandated EV sales targets, and the growth of the nation’s charging infrastructure slowing in 2025, the move risks bursting Britain’s electric car bubble for good.
The Daily Mail and This is Money takes a closer look at how Ms Reeves’ plans to implement this new form of taxation on the greenest cars, if it is a fair system and how it could temper appetite for EVs going forward.
Reports have emerged that Chancellor Rachel Reeves will announce road pricing for electric cars in her Autumn Budget statement
How would pay-per-mile EV taxation work?
Report have emerged the Chancellor will announce road pricing for electric cars in her speech delivered to the Commons on 26 November.
Ms Reeves is expected to rubberstamp road pricing for 2028, pending a public consultation.
The Telegraph has been told by government sources that EV owners will be charged 3p for every mile they travel.
And this will be in addition to the £195-a-year VED rate electric car drivers now have to pay since April this year under new measures that ended EV exemption from car tax.
Dubbed by government insiders as ‘VED+’, for EV owners covering an average of 10,000 miles per year, their total annual tax outlay will be £495; £300 in per-mile charges and £195 in standard rate VED.
Drivers of hybrid cars, which are powered by both a combustion engine and electric motors, will also have to pay the charge, but at a lower rate, it has been claimed.
It’s estimated that it would help the Treasury raise an estimated £1.8billion by 2031.
How will mileage be tracked and audited?
One of the biggest criticisms of road pricing to date has been how it will be enforced, with major concerns raised that it will require Big Brother-style black boxes that monitor every movement of the nation’s motorists.
But Ms Reeves plans to quell those concerns with a less invasive system.
She instead will ask EV drivers to estimate their annual mileage and pay a fee based on that prediction.
If the motorist doesn’t drive as far as estimated, the remaining money will be carried over to cover the subsequent year’s mileage.
However, if they drive further than originally estimated, they would be required to top up their payment to the Government.
How mileages will be monitored and audited remains one of the major questions the nation’s drivers – and shadow MPs – will have. And it too could trigger a rise in one particular type of fraud that’s already prevalent in Britain… which we will come to later.
Last year, owners of electric cars under three years old were found to have driven an average of 10,054 miles. At a 3p-a-mile charge, this would mean the typical EV owner would need to cough up £301.62 per annum
How much will it cost EV drivers per year?
Recent analysis has shown that electric vehicle owners typically cover higher annual mileage than drivers of petrol cars. In fact, only motorists with diesel models travel further than EVs.
Last year, owners of electric cars under three years old were found to have driven an average of 10,054 miles, a study by the RAC Foundation calculated.
This is far more than petrol models (7,585 miles) and only marginally short of the average for diesel cars, which last year was 10,728 miles.
At a 3p-a-mile charge, this would mean the typical EV owner would need to cough up £301.62 per annum.
To put the cost into perspective, EV drivers would be looking at a charge of just over £12 to cover a trip from London to Edinburgh.
Driving 102 miles from Cambridge to Oxford would cost £3, while the 73-mile journey from Liverpool to Leeds will be £2.
Despite the pay-per-mile levy, the Energy and Climate Intelligence Unit think tank has estimated that EVs would still be ‘£1,000 cheaper to run per year than petrol cars’.
This is based on the overall running costs of the 10 best-selling EVs last year, calculated on the premise that 80 per cent of charging is carried out at home (where it is cheapest – and quite significantly) and 20 per cent using the public network.
Is EV pay-per-mile taxation ‘fair’?
Ministers are expected to frame the announced plans for EV road pricing as one of fairness, as drivers of petrol cars currently pay £600 a year in fuel duty.
And, in their defence, that’s what MPs were told following the road pricing inquiry launched in December 2020.
The Transport Select Committee recommended that per mile road pricing would be ‘one of the best fiscal changes’ and must be introduced by the end of the decade.
It said the pay-per-mile scheme should be mandatory by 2030 at the latest but also urged that EV drivers should have been able to opt into the scheme from as early as 2023 with the temptation of grants and other incentives.
It concluded that road pricing ‘has always been the most effective way to tackle road congestion and pollution’ – as well as plugging the Treasury’s £40billion-a-year tax hole when existing motoring-taxation revenue streams dry up.
Yet, pay-per-mile taxation was shunned by the previous administration on the grounds that it would be too politically toxic.
The Government’s climate advisers have been piling pressure on ministers to consider alternative levies to address lost receipts from fuel duty for the best part of a decade
Last year, Campaign for Better Transport (CBT) issued a plea to Ms Reeves to reconsider road pricing, claiming it would receive the full support of the public.
In a letter to the Chancellor last September, CBT director of policy and campaigns Silviya Barrett said EV drivers should ‘fairly contribute towards vehicle taxation’, calling for a ‘simple charge’ based on ‘regular odometer readings’.
Barrett added: ‘We fully appreciate that such a change would be perceived as difficult and criticised by the opposition and by certain representative groups. However, our research demonstrated the general public supports such a move.’
A more recent survey found that half of drivers would support pay-per-mile taxation.
Leading car sales platform Carwow surveyed 1,014 drivers last month and half supported switching away from VED to road pricing because they believe it is a fairer system for all fuel types.
Many of the motorists polled said it would also trigger a change to their driving habits; one in three said they would drive less to control their spending.
Paul Barker, editor of automotive magazine Auto Express, said a move to introduce road pricing would be ‘controversial’ but with the switch to electric taking ever-increasing chunks out of fuel duty revenues that ‘at some point the government was going to have to decide what comes next’.
He added: ‘Petrol cars will be on the road for many, many years to come, but every electric car sold is one fewer that’s visiting petrol stations and pumping money into Treasury coffers.’
Those in rural areas and without driveways hardest hit
Road pricing will unquestionably hit drivers living in remote areas hardest because of their limited access to public transport and reliance on cars for more daily tasks.
It too will almost certainly extend the EV ownership imbalance in Britain, with 90 per cent of electric car keepers having a driveway at home and access to cheaper charging prices.
According to the latest AA Recharge Report for September, the average cost per mile to charge an EV using a domestic tariff is 5.88p per mile.
However, for those without off-road parking facilities, the cheapest option – using a public slow charger offering speeds of up to 8kW – is 11.3p per mile, almost double that of plugging in at home.
And for EV owners without driveways who use ‘fast’ chargers (9kW to 49kW), the average cost per mile increases to 13.79p.
That’s more than it currently costs to run a petrol (11.82p per mile) or diesel car (10.18p).
Most expensive of all are ultra-rapid chargers – 150kW-plus devices typically found at motorway service stations – at 17.63p, which is more than three times the cost of charging domestically.
The cost deficit is partly due to higher taxation on public charging at 20 per cent, compared to just 5 per cent VAT levied on those who can plug in at home – an issue raised by the motor industry that’s campaigning for VAT on public charging to be slashed.
It could increase fraud
While The Telegraph reports that drivers will need to submit their estimated mileage for each year to make payment, they will still be required to prove how far they’ve driven in their EVs per annum.
While this could potentially be measured with telematics black boxes, at the annual MOT test, or with photographs of mileage counters, it opens the door to a specific type of tampering that’s become prevalent in the UK in recent years.
According to analysis of 200,000 UK cars by vehicle background check provider CarVertical, one in 50 used motors has been ‘clocked’ to conceal its true mileage.
If EV owners are required to prove their annual mileage when submitting road pricing payments, it could open the door to more fraudulent mileage adjusting, which is already prevalent, according to multiple reports
While commonplace in the eighties and nineties, clocking has been updated for the digital age, with records showing a significant increase in mileage adjusting in recent years to scam second-hand car buyers into overpaying and help drivers cheat to adhere to contracted mileage limits in motor finance agreements.
Cheap ‘mileage blockers’ – also advertised as ‘mileage freezers’ – are devices sold legally online that make it impossible to identify if a car’s mileage has been tampered with.
Instead of lowering mileage, they pause it when the car is being driven. But they don’t only pause the odometer in your car’s clocks behind the steering wheel; they stop every new mile driven from registering on the vehicle’s ECU, which is essentially the car’s brain and record holder.
UK sellers of these manipulative products are taking advantage of legal loopholes around clocking devices by caveating that they are ‘for off-road or research use only’, an exclusive investigation by This is Money found.
However, they are also advertised as ‘totally untraceable’ and ’99 per cent undetectable’, raising serious concerns that fraudsters could potentially target EV drivers who will be obliged to submit their annual mileage in some form.
Despite the Department for Transport launching its Electric Car Grant discount in the summer, EV buyers face an increase in running costs
Road pricing threatens to completely kill off EV demand
The motoring industry will rightfully point fingers at the Chancellor for providing mixed messaging around EVs at a critical time for their adoption.
EV sales among private buyers have been stuttering for months over concerns about the rising cost to own them – as well as high up-front pricing, range anxiety and unreliability with the public charging infrastructure.
Despite the Department for Transport launching its Electric Car Grant discount in the summer, EV buyers face an increase in running costs as a result of Ms Reeves seeing in the Tory-announced policy of ending VED exemptions for electric cars in April.
We are also still awaiting a decision on whether transport minsters will increase – or scrap – the controversial Expensive Car Supplement (ECS) threshold for EVs that’s embedded into the VED system.
This requires of buyers of new cars (of any fuel type) with a recommended retail price of £40,000 or more to pay a £425 ECS charge for five years on top of the standard rate of VED. It takes the annual cost for drivers to a whopping £620.
Experts argue that seven in ten electric cars – which typically cost around £10,000 more than their petrol equivalents due to the higher price of batteries – bought in Britain are over the existing ECS threshold.
A slowdown in public charger installations is also threatening Government’s target of having 300,000 devices in place by 2030, which is also impacting appetite for EVs.
This comes at a time when ministers are forcing manufacturers to sell an increasing share of electric cars each year via the Zero Emission Vehicle (ZEV) mandate introduced last year.
Manufacturers have already shared with the Daily Mail that they will struggle to meet the required 28 per cent EV share required to avoid fines in 2025 – but have little hope of meeting the 33 per cent target for 2026.
The Government is forcing manufacturers to sell an increasing share of electric cars each year via the Zero Emission Vehicle (ZEV) mandate
Edmund King, AA president, said the introduction of pay-per-mile taxation for EVs could become a ‘poll tax’ on electric car owners: ‘Whilst we acknowledge the Treasury is losing fuel duty revenue as drivers go electric, the Government has to tread carefully unless their actions slow down the transition to EVs.
‘The ZEV mandate for 28 per cent of new car sales to be zero emissions this year will not be met as sales are running at just 22 per cent.
‘We need to see the detail of this proposal to ascertain whether these new taxes will be equitable or a poll tax on wheels.’
Having not been consulted about a potential road pricing scheme for EVs, Britain’s car manufacturers are unhappy with the leaked suggestions that pay-per-mile could soon be introduced.
A spokesperson for the Society of Motor Manufacturers and Traders told the Daily Mail: ‘We recognise the need for a new approach to motoring taxes but at such a pivotal moment in the UK’s EV transition, this would be entirely the wrong measure at the wrong time.
‘Introducing such a complex, costly regime that targets the very vehicles manufacturers are challenged to sell would be a strategic mistake – deterring consumers and further undermining industry’s ability to meet ZEV mandate targets, with significant ramifications for perceptions of the UK as a place to invest.
‘A smarter, fair and future-ready taxation system requires a fundamental rethink – one that must be done in full partnership with the industry and other stakeholders.’
Individual car makers have spoken out against the plans too.
Volvo CEO Håkan Samuelsson (pictured) said road pricing taxation on EVs is ‘definitely bad’
‘That is definitely bad,’ Håkan Samuelsson, chief executive at Volvo Cars, said in an interview when asked about pay-per-mile EV taxation.
‘Don’t go from incentivising something and pushing it with legislation to start to put on penalties and tax on top of a positive development.’
Tanya Sinclair, CEO at Electric Vehicles UK – a campaign group made up of EV companies – said Government insiders should stop fuelling speculation, adding: ‘Rumours about pay-per-mile only unsettle drivers and risk slowing the very market we need to grow.’
Vicky Edmonds, CEO of EVA England, a non-profit member association representing current and prospective EV drivers, said it is the ‘wrong time to bring in further costs’ for EV drivers.
She called for ministers to address existing ‘challenges’ to switching to electric before any road pricing scheme is considered.
Ian Plummer, chief commercial officer at Auto Trader, warned Ms Reeves to ‘think extremely carefully’ about the move, adding: ‘Drivers respond to incentives and anything that puts up running costs for electric vehicles will slow that momentum.’
James Court, head of policy at Octopus Electric Vehicles, said: ‘As we’ve seen in other countries, introducing a charge now would stifle the growth we’ve seen over the past years, and be self-defeating.’
David Martell, chief executive at homecharger manufacturer Andersen said: ‘A rushed or poorly designed road pricing scheme risks undermining confidence in electric vehicles at a crucial time.
‘If the government gets this wrong, it could stall the transition to cleaner transport and damage a growing British industry built around home charging and EV innovation.’
