In the recent 2025 budget statement, Chancellor Rachel Reeves set the stage for significant changes regarding electric vehicles (EVs) in the UK. The introduction of a pay-per-mile tax and an additional £1.3 billion for the plug-in car grant indicate a mixed approach aiming to balance revenue generation with support for EV adoption.
Understanding the Pay-per-Mile Tax Changes
The government has proposed a new Electric Vehicle Excise Duty (eVED) to tax electric cars at a rate of 3p per mile, while Plug-in Hybrid Electric Vehicles (PHEVs) will incur a lower charge of 1.5p per mile. This tax will be applied simultaneously with the existing Vehicle Excise Duty (VED), which EVs will retain. The Treasury suggests that this fee is positioned at about half the cost of fuel duties for traditional gas-powered vehicles. With the cost set to rise annually in line with the Consumer Price Index (CPI), the government aims to generate revenue while encouraging the transition to cleaner vehicles.
For most drivers, the eVED won’t be a significant financial burden. If an EV covers an estimated 8,000 miles annually—a typical figure based on government statistics—drivers will pay roughly £20 monthly. This advance payment model requires vehicle owners to estimate their mileage at the beginning of the year, adjusting payments the following year based on actual use. Notably, the charge will apply only to cars, leaving vans, lorries, and other vehicles exempt.
However, the new tax structure has garnered criticism. The Society of Motor Manufacturers and Traders (SMMT) voiced concerns about its potential to deter consumers from choosing electric vehicles. The fear is that this could reverse the trend towards EV adoption, particularly as leading automotive executives have observed cancellations in orders for electric cars.
Boosting the Plug-in Car Grant
In response to potential backlash over the eVED, the chancellor announced an extension of the plug-in car grant, which has been met with scrutiny for its complex structure and limited reach. The government is adding £1.3 billion to this funding, extending the grant for another year, with discounts ranging from £1,500 to £3,750 based on vehicle specifications. While the grant aims to facilitate the switch to zero-emission vehicles, skepticism remains regarding its efficacy in expanding the EV market.
Research by New AutoMotive highlights that the current grant scheme is yet to effectively broaden consumer interest in electric vehicles. Stringent eligibility criteria and a confusing points system mean that only a handful of models qualify for the maximum grant, influencing sales unevenly. The Ford Puma Gen-E has notably benefited, selling out quickly due to the support from this scheme.
Changes to the VED Expensive Car Supplement
Another aspect of the budget addressed the Vehicle Excise Duty’s (VED) expensive car supplement threshold. Previously capped at £40,000, the threshold will rise to £50,000 for electric vehicles. This change is significant, as two-thirds of EVs on the market currently exceed the prior threshold. Buyers of high-value electric cars will now face a reduced financial burden under this specific scheme, which imposes an additional annual charge on more expensive vehicles.
Alterations to the Motability Scheme
Significant shifts are also underway for the Motability scheme. Recent announcements indicated that “luxury” vehicles will be excluded from their offerings, following directives to procure 50% of the vehicles from British manufacturers by 2035. This decision creates new challenges under the current criteria, raising questions about accessibility for those reliant on the scheme.
The budget also revealed plans to cut various tax breaks associated with Motability, including VAT relief on top-up payments for pricier cars. Additional implications include the discontinuation of overseas breakdown cover both for vehicles leased under the scheme and the establishment of stricter mileage limits on leases. A notable concern arises as exempt drivers under disability payments will still be subjected to the eVED, diverging from the previous exemptions tied to fuel duties for petrol or diesel vehicles.
Ginny Buckley / Sam Burnett
Cost increases on the way for electric vehicle drivers in the 2025 budget.