How the New UK EV Mileage Tax Will Shape the Market
The Office for Budget Responsibility (OBR) has published its assessment of the government’s new mileage tax for electric vehicles—a policy that represents one of the most significant shifts in the UK’s motoring tax system in decades. For years, EVs have benefited from lower running costs and exemptions from most fuel-related charges, helping accelerate adoption as the government pushes toward its 2030 electric sales mandate.
A Clear Cost for EV Drivers
From April 2028, electric and plug-in hybrid cars will face a new per-mile charge, added on top of standard Vehicle Excise Duty. The OBR confirms the rates set out in the Budget:
3p per mile for battery-electric cars
1.5p per mile for plug-in hybrids
Both rising annually with CPI inflation
For an electric-car driver covering around 8,500 miles a year, the tax works out to roughly £255 in 2028–29—about half the fuel-duty cost faced by the typical petrol or diesel driver. For the Treasury, the charge is forecast to raise £1.1 billion in its first year, increasing to £1.9 billion by 2030–31 as EV numbers grow.
Impact on EV Demand
The OBR expects the new tax to influence buyer behaviour. While it does not reverse the long-term shift to clean transport, it does narrow the financial advantage of going electric. Over the forecast period, the OBR estimates around 440,000 fewer EV sales than in a scenario without the tax. However, 320,000 of those are expected to be offset by other Budget measures, including the expanded electric car grant and a higher threshold for the Expensive Car Supplement. That leaves a net reduction of around 120,000 sales over the coming years.
Alongside the impact on sales, the OBR also expects a small drop in average EV mileage. This further reduces expected revenues by around £200 million by 2030–31.
Other Budget Measures Supporting EV Uptake
To counterbalance the new charge and keep electric models competitive, the government has introduced several incentives that the OBR factors into its modelling. Measures include raising the Expensive Car Supplement threshold from £40,000 to £50,000 from April 2026 and extending the Electric Car Grant through to 2029–30. Together, these policies cost around £0.8 billion a year by 2030–31 but help maintain demand as the tax framework evolves.
A New Phase for the EV Transition
The OBR’s assessment highlights the central trade-off in the 2025 Budget: finding a sustainable replacement for declining fuel-duty revenues while supporting the ongoing shift toward low-emission transport. The new mileage tax provides a major new revenue stream and signals the end of the period when electric cars were largely exempt from motoring charges. With incentives still in place and a government mandate requiring 80% of new car sales to be electric by 2030, the transition is expected to continue—now within a more mature, revenue-raising tax system.