New Tax on Electric and Hybrid Cars Leaked Ahead of UK Budget

A recently leaked report highlights a forthcoming tax on electric and hybrid vehicles in the UK, detailing significant changes to the economic outlook ahead of the Budget.

The document from the Office for Budget Responsibility (OBR) indicates that, starting in April 2028, drivers of electric cars will incur a road toll of 3p per mile, while those with plug-in hybrids will face a charge of 1.5p per mile. These rates are set to increase annually, reflecting inflation.

The report suggests that this tax will be about “half of the fuel tax paid by gasoline car drivers.”

In response to the leak, the OBR issued an apology and stated that an investigation into the oversight is underway.

For electric car owners covering approximately 8,500 miles during the 2028-29 period, this tax would translate to around £255, effectively half of what petrol and diesel car drivers pay. The OBR anticipates that this new charge will bring in roughly £1.1 billion in revenue for the 2028-29 financial year, potentially increasing to £1.9 billion by 2030-31.

However, the actual revenue raised remains uncertain and contingent on the number of consumers opting for electric vehicles in the upcoming five years.

Post-2030, with the prohibition on new gasoline and diesel cars, all new models will have to be either electric or hybrid. Still, this tax may deter some from choosing electric options. The report highlights that, “This new fee increases the lifetime cost of electric vehicles and is therefore likely to reduce demand for electric vehicles.”

It also notes that automakers may need to adjust pricing strategies, either lowering costs or reducing the availability of non-EV models, to adapt. Overall, this charge is projected to lower electric car sales by about 440,000 units, although mitigating factors from other government policies could offset as many as 130,000 sales.

Due to the anticipated drop in sales, alongside a modest decrease in miles driven, the total funding generated through this tax might decrease by approximately £200 million by 2030-31.

Delvin Lane, CEO of Instavolt, which focuses on developing and installing charging infrastructure, expressed concerns that the tax could discourage the transition to electric vehicles. He pointed out that drivers without home charging solutions already face higher public charging costs, with rural and low-income drivers likely bearing the brunt of these changes.

Lane urged authorities to collaborate closely with the charging and automotive industries to create a fair and sustainable road taxation system that continues to encourage the shift towards zero-emission vehicles.

Edmund King, chairman of the AA, remarked, “This budget puts motorists at a crossroads, with the Chancellor announcing major tax proposals for EV owners.” He emphasized that there’s a need for governments to find a balance between funding road infrastructure and ensuring that the shift to electric vehicles does not impede the attainment of environmental objectives.