UK Budget 2025: What the New Electric Car Tax Means for Drivers
The 2025 Budget introduces the biggest change to how electric cars are taxed since EVs first went mainstream. With fuel duty set to collapse as more people switch from petrol and diesel, the government is reshaping the system so that EVs contribute to road funding while keeping the transition affordable for drivers.
A New Mileage Tax for EVs
From April 2028, electric and plug-in hybrid cars will pay a new mileage-based charge called Electric Vehicle Excise Duty (eVED). It will be added to the existing VED system and paid once a year.
The tax is deliberately modest. EV drivers will pay about half the equivalent fuel duty of a petrol or diesel driver, and plug-in hybrids will pay even less. The government estimates the typical electric-car owner will pay around £240 a year, or roughly £20 a month.
There will be no tracking devices and no requirement to report where or when miles were driven. Drivers will simply report their annual mileage when renewing VED, much like an MOT reading.
The government argues this is about fairness: all cars create congestion and wear on the roads, but EVs currently pay almost nothing in motoring taxes.
Support to Keep EVs Attractive
Because a new charge risks slowing down the shift to clean transport, the Budget also increases support for EV buyers.
The Electric Car Grant, worth up to £3,750, has been extended to 2029-30 with £1.3 billion of extra funding. More drivers will be able to use it to reduce the upfront cost of going electric.
The Budget also raises the threshold for the “Expensive Car Supplement,” meaning new EVs won’t pay the premium unless they cost over £50,000 from 2026. This keeps many mass-market models exempt.
And for companies and employees, changes to benefit-in-kind rules on Employee Car Ownership Schemes have been delayed until 2030, giving fleets more stability at a time when many are transitioning to electric.
Investment in UK EV Manufacturing
The government is also trying to strengthen Britain’s position as a competitive EV manufacturing hub. Funding for the Drive35 programme has been extended to 2035, with an extra £1.5 billion to support UK battery technology, motor production and next-generation zero-emission vehicles.
This is part of a wider industrial strategy that sees EVs as central to future growth — from high-value manufacturing to the electricity demand created by new data centres.
Roads, Charging and Everyday Practicalities
The revenue from eVED will feed directly into road maintenance. With fuel duty expected to fall by half in the 2030s and close to zero by 2050, the government argues new funding is essential. By 2029-30, £2 billion a year will be committed to repairing and improving local roads, including filling millions of potholes.
Charging infrastructure is also being expanded. The Budget puts another £100 million into home, workplace and public chargepoints, and £100 million more for local authorities to hire specialists who can speed up installations. New planning changes are being explored to make it easier for households without driveways to get access to charging.
Finally, the government will review the cost of public charging — a significant concern for drivers — with a report due in 2026.
What It All Means
This Budget marks a shift from treating electric cars as a special case to integrating them into the broader tax system. The government wants EVs to remain the cheaper, cleaner and more attractive option — but also wants a long-term way to pay for the country’s roads.
The overall message is one of balance: a new charge to stabilise public finances, matched with long-term support to keep the EV transition moving. If the policies work as intended, Britain will continue to grow its electric-car market while building the manufacturing base, charging network and road system needed to support it.