By FREDA LEWIS-STEMPEL, MOTORING REPORTER and ROB HULL, MOTORING EDITOR and JON BRADY, SENIOR NEWS REPORTER
Electric vehicle owners have reacted with dismay to another tax being slapped on their eco-friendly cars after the Chancellor announced plans to impose mileage-based electric Vehicle Excise Duty (eVED) in less than three years' time.
Rachel Reeves used her Budget to confirm the Treasury's controversial road pricing plans in order to claw back lost fuel duty revenue as a result of drivers moving to electric vehicles (EVs), starting from April 2028.
It will be charged at a rate of 3p per mile, and 1.5p per mile for hybrid car owners.
Government consultation papers propose that EV owners will likely have to report to an MOT testing centre every year to have their mileage read and the tax imposed - despite new cars not requiring an MOT for their first three years.
New car owners will be offered the option of estimating their first year's mileage in order to set their initial rate.
Some drivers online have threatened to tamper with odometers to avoid paying the tax - which the Government says it expects.
'The introduction of eVED may increase the likelihood of motorists choosing to clock their vehicles, or allowing the odometer to be inoperative,' it said.
James Sponder, pictured with wife Daniela and children Luca and Alessia, says he would not have bought an electric vehicle if he had known taxes were on the way
Drivers who spoke to the Daily Mail and This is Money accept that a honeymoon period of incentives to switch to electric, including low tax, was never going to last - but have nevertheless slammed the Chancellor for 'yet another tax raid'.
James Sponder, 46, said he now regrets his EV purchase, which he made through salary sacrifice.
'I probably wouldn't have got the car if I knew that was going to change significantly, I don't think it's a very good idea,' he said.
'If you try to encourage everyone to move to EVs, you can't then start taxing people, it will just switch everyone off.'
Scott Gallacher, director of Leicester-based private wealth management firm Rowley Turton, told us: 'As an EV driver, I can’t say I’m surprised. No Chancellor was ever going to give up billions in fuel duty forever, so a per-mile charge was inevitable.
'What is contradictory, though, is introducing this tax at the same time as pledging £1.3billion to encourage EV adoption.
'Personally, it won’t change how or where I drive, but it does feel like yet another tax raid on those of us who moved to electric when the Government encouraged us to do so.'
Wealth management boss Scott Gallacher (pictured with his electric BMW) has bemoaned 'yet another tax raid' on electric vehicle owners
The Office for Budget Responsibility (OBR) has confirmed that electric vehicles will be subject to a mileage-based charge from April 2028 - a 3p per mile tax
Even car industry bosses have expressed concern over the introduction of eVED - which will be paid over and above the standard annual flat rate of £195.
Matt Galvin, managing director of EV manufacturer Polestar, said: 'We have always been clear that EV drivers should contribute their fair share to road costs.
'But today’s Budget sends the wrong signal by penalising the very drivers who are accelerating the transition to clean transport. If this is one of the goals then a review of fuel duty which hasn’t changed since 2011, would also be welcome.'
Other drivers, including EV expert Dr Euan McTurk, have suggested the holiday from tax was always going to end as the cars became more common.
Dr McTurk averages between 10,000 and 12,000 miles a year between his Hyundai Ioniq 5 and his rare 1990s Peugeot 106 Electrique - which would make him liable for up to £360 of eVED a year.
He lives in Dundee: its council was among the first in Britain to offer EV drivers incentives like free parking and free charging for early adopters. Those privileges have since been rescinded.
He told us: 'There's been a lot of pushback from everyday drivers - but if you look beyond that the overall cost of running an EV, the Treasury says, is still about 6p per mile, compared to 15p per mile for a petrol car.
'It's still a saving overall. People weren't expecting to have £0 VED forever. But the Government needs to make clear it's a lower tax for many - maybe with a calculator people can use to see how much it will cost.
'I was grateful for the £0 VED and free charging for a while but to be honest I've managed to make it work as taxation has come in.
'The issue still remains with public charging - they need to find ways of bringing the cost down.'
Dr Euan McTurk, an electric vehicle expert, says that electric vehicle ownership remains cheaper than owning a petrol car despite the new tax
Pay-per-mile schemes have been batted around for years as MPs have struggled to find ways to fill the £40billion fiscal black hole created by the switch to EVs and the loss of motoring taxes including fuel duty.
Ms Reeves told Parliament yesterday: 'All cars contribute to wear and tear on our roads, so it is only right that our motoring taxes cover EVs via a modest per mile levy, with extra support to keep EV ownership attractive.'
The OBR predicts that the introduction of eVED will 'reduce demand for electric cars as it increases their lifetime cost', with an estimated 440,000 fewer EV sales across the next five years.
However, the Treasury said the OBR's calculation is incorrect and it will be closer to a 120,000 EV shortfall between now and the end of the decade.
It too is expected to be offset by a forecast 130,000 increase in electric vehicle sales due to other EV budget incentives - including an expansion of the Electric Car Grant and increasing the VED Expensive Car Supplement threshold to £50,000.
Pay-per-mile will see EV owners having to pay a so-called 'modest' 3p charge per mile they drive. This is on top of the £195-a-year VED rate electric car drivers now have to pay since April this year.
Plug-in hybrid vehicles (PHEVs) - which have small batteries and are capable of covering up to 90 miles on electric-only models - will also be subject to a 1.5p per mile charge. Both rates will rise annually in line with CPI.
Rachel Reeves is facing backlash over the imposition of a new pay-per-mile road charge on electric vehicle owners following the Budget
Pay-per-mile is a road pricing system that levies a fee for each mile driven.
It's usage-based, so those who use the roads more pay more - and the idea is that it encourages people to use cars less and public transport more.
The OBR states that average driver of an electric car in 2028-29 driving 8,500 miles is therefore expected to be charged £255 in eVED. This is roughly equivalent to half the rate of fuel duty tax paid per mile by drivers of petrol and diesel vehicles.
The revenue will go towards maintaining the UK's roads and infrastructure in the same way fuel duty does.
The OBR says eVED introduction will 'offset around one-quarter of the 0.6 per cent of GDP in revenue set to be lost from fuel duty by 2050 due to the transition to electric vehicles'.
Instead of bringing in an invasive system where black boxes are fitted that track vehicle mileage, the Treasury has confirmed that EV drivers will 'self-report' their mileage and pay a fee based on that prediction.
The eVED charge will be paid via the DLVA and - based on a driver's estimation - can either be a full lump sum payment or spread across installments. The mileage will then be checked at the annual MOT test.
With new models not requiring an MOT until they're three years old, it means owners of EVs will need to visit a test centre annually over the first 36 months to have their mileage audited.
It means that while their car won't be MOT tested, owners of EVs under three years old will still need to have an official 'mileage check' carried out by a test centre.
While this will incur a charge from accredited garages, the Government will cover the cost of the mileage check - though hasn't liaised with groups like the Independent Garage Association regarding what these costs amount to.
However, this system could be replaced by connected car technology within the vehicle itself and linked to manufacturers, which opens an entirely new can of worms in terms of privacy issues.
If an EV driver overestimated their mileage at the point of payment, the remaining money will be carried over as credit to cover next year's eVED charge.
However, if they drive further than originally estimated, they would be required to top up their payment to the Government.
Howard Cox, Founder of FairFuelUK.com, warned the introduction of the policy will likely open the door for pay-per-mile charges for all cars irrespective of their fuel type.
'Rachel Reeves's 3p Pay per mile on EVs is I fear the thin end of the wedge to make all vehicles, whatever their type of fuel, pay tax as they drive,' he said.
'Whilst Fuel Duty and VAT continues to deliver billions to the Exchequer, both types of taxation cannot work alongside each other. It's time Government listens to and consults drivers as to developing a long term road user tax plan that's fair to UK's 37 million drivers and the economy.'
Car giant Ford said the measures introduced in the Budget 'sends a confusing message' to drivers at a time when the EV transition is stumbling: 'Extra investment in charging and the Electric Car Grant is positive, but it cannot offset the impact of a poorly timed pay per mile charge on EVs and hybrids.
'Against a hugely challenging market, and compliance targets drifting out of reach, this is the wrong tax at the wrong time.'
Edmund King, AA president, says the Budget has 'put drivers at a fork in the road' and that while drivers 'fully understand' the need for raising money for highway upkeep and pothole repairs, this shouldn't be at a detriment to the EV transition.
He says: 'Getting the timing right is crucial, and there will be concerns that should pay-per-mile for EVs be introduced too soon it may put slow down the switch to electric cars.'
Simon Williams, head of policy at the RAC, says the Government 'expanding the Electric Car Grant' shows it is fully aware that pay-per-mile will 'slow down the transition to electric vehicles'.
Steve Gooding, director of the RAC Foundation, commented: 'By our calculations a 3p per mile charge for EVs is still likely to leave a gap from the annual revenue Chancellors have come to bank on from fuel duty, which means its unsurprising that in parallel the Treasury has looked to increasing the level of fuel duty as a way to cover a shortfall that could otherwise be as much as £2billion per annum by the end of the decade.'
This is Money asked five electric car owners how the pay-per-mile charge will impact their ownership and whether they'd go electric again under these conditions...
EV owner Gill Nowell has been driving EVs since 2012 and would still pick an EV today even with pay-per-mile because she saves so much in running costs by charging at home
"I will still pick an EV because charging at home saves her so much money"
Cheshire business founder, Gill Nowell, 52, tell us: 'I've driven EVs through work since 2012, and I've had an electric car since 2019.
'Even with pay-per-mile, I'd still choose electric. If I end up paying around £250 a year through pay-per-mile, I'm still saving about £750 in running costs by charging at home. It costs me less than £5 to fully charge at home overnight.
'But the real issue is fairness.
'According to EVA England, half of drivers without driveways already find their EVs more expensive to run because public charging costs more.
'Let's not penalise EV drivers now, especially when, like myself, over 95 per cent of us would never go back to the ICE (internal combustion engine) age.'
Tesla owner Jacob Eden wouldn't have bought an EV if he knew pay-per-mile was coming. He would still go ahead with it in place because he prefers his Tesla to a combustion car
"I probably wouldn't have bought an EV if I knew this was coming"
Jacob, 32, who works in Telecommunications and lives in Southend-on-Sea.
This is Money asked if he would have bought his Tesla if he knew pay-per-mile tax was being considered.
He said: 'Probably not, I understand that EV drivers must also pay their way, and rightly so, but this is too soon. It's mixed messaging and confusing for the consumer.'
But he said still 'far prefers' his EV to combustion but understands that 'a lot of people out there who would hesitate and then potentially not switch'.
We asked Jacob how eVED will impact his finances: 'I'd be able to expense the miles for business, so that would be felt by the employer. However, it would certainly add more to our home energy bill at a time when bills are already a hefty chunk of our outgoings.'
Jacob says he thinks a pay-per-mile scheme is fair but on if applied to all vehicles, not just EVs.
'What would be fair is unfreeze the fuel duty and bring in money that way and then potentially look at pay per mile for all vehicle types,' he said.
'My running costs are still far lower. We really love our EV and hope more people get the right signals to help them make the switch.'
Marvin Samuels has two EVs in his household and would still buy an EV with pay-per-mile in place. If the revenue goes towards maintain roads he thinks it is largely fair - unless you live rurally
"I'd still buy an EV today knowing pay-per-mile taxation is coming"
Marvin Samuels, a 50-year-old Test and Release Manager from Chester told This is Money: 'If I was planning to buy an EV as the potential pay-per-mile plans were announced I would still buy an EV.
'If the revenue collected goes directly to maintaining UK roads, then I think it is mostly fair, although those living in rural areas, a long distance from their place of work, or that need to travel for their job, it could become unsustainable for those individuals.
'Having calculated the potential additional costs based on my regular commute and additional trips for work, and compared them to the cost of running an ICE [Internal Combustion Engine] vehicle, financially it would still be beneficial to me and my family to own an EV.
'Personally, the reduced running costs are a 'benefit of' rather than a 'reason to' switch to an EV.
'We currently have two EVs and a petrol car; the petrol car spends most of its time in the garage and is used only occasionally. Paying for petrol for it feels excessive these days and running two EVs has proved more cost effective for us.'
Gary Comerford says that the timing for EV pay-per-mile is 'pretty poor' and that an EV 'disincentive seems counter intuitive'
"Government should delay pay-per-mile sting on EVs"
Gary Comerford, a 58-year-old business consultant from Reading, say the timing of the eVED announcement is 'pretty poor'.
He told This is Money: 'EVs make up around five per cent of the car parc in the UK and the Government is committed (through the ZEV Mandate) to increase that by 2030.
'Adding a financial disincentive - soon after adding a financial incentive in the form of the new car grant, and a disincentive in the form of adding VED to electric cars - seems counterintuitive.
'Wait until EVs form a larger proportion of the overall car parc then implement this. It will be far better received.'
We asked Gary if the arrival of eVED would see him shop in his Polestar EV.
'I will, perhaps, consider the financial implications of taking a journey by car in favour of not taking this journey if it wasn't a necessary trip.
'3p-a-mile is not a great deal: costs can add up if you don't watch those miles.'
But even with pay-per-mile's introduction in 2028, Gary says an EV will still save him money.
'In my case this will still leave me financially better off than owning and running an electric vehicle. The savings will be reduced per year but not enough to make a difference to my use case for owning one.'
Doug Palmer's EV has covered a staggering 293,000 miles and he says pay-per-mile will cost him an extra £600 a year
"I'm a high-mileage EV owner and pay-per-mile is going to cost me an extra £600 a year"
Doug Palmer has covered almost 300,000 miles in his electric Tesla and says he will stick by EVs despite the new eVED scheme costing him an extra £600 per year.
But when This is Money asked if he thought pay-per-mile was fair for EVs, he said: 'No I don't. It is penalising EV owners, when we need to be encouraging more people to switch.
'There is no equivalent penalty for high mileage ICE vehicle owners.
'If they are going to introduce this, they need to cap it at say £300 per annum. For cars and light commercial vehicles, until we reach 50-plus per cent of vehicles being EV. Then review.'
But Doug is still adamant that he won't be going back to petrol or diesel.
'It won't change my EV ownership as I travel whenever or wherever I want to. I will still save over ICE car ownership due to very low maintenance and free charging.
'But I will have to put money aside, especially if they charge for the mileage I cover in Europe as well as my UK mileage.'
Doug, who owns a Tesla registered before April 2017, says his car is now subject to £20 per annum in standard rate EV - but is aware that owners of models registered after April 2017 are already being stung £195-a-year for the road tax.
'I feel some EV car and van owners have been unfairly penalised, while there are second-hand diesel cars that still pay £0 to £30! How can that be right?!'
