A new tax for electric and hybrid vehicles has been confirmed in a leaked report outlining the UK’s economic and fiscal outlook ahead of the Budget.
The Office for Budget Responsibility’s (OBR) document has stated the charge would mean electric car drivers will pay a road charge of 3p per mile, while plug-in hybrid drivers will pay 1.5p per mile from April 2028, with the rates going up each year with inflation.
The government said the new tax is about “half the fuel duty rate paid by drivers of petrol cars”, the report says.
In a statement, the OBR apologised for the leak and said it was investigating the error.
Under the measures, an electric car driver clocking up 8,500 miles in the 2028-29 financial year is expected to pay about £255 – about half the cost per mile that petrol and diesel drivers pay in fuel tax.
According to the OBR, the new per-mile charge is expected to bring in £1.1bn in the 2028-29 financial year, rising to £1.9bn by 2030-31.
However, how much money it actually raises will depend on how many people buy electric cars over the next five years, with the report adding the yield “is uncertain”.
All new cars will have to be electric or hybrid from 2030, when a ban on the sale of new petrol and diesel cars comes into force. But this new tax could make electric cars less appealing.
“This new charge is likely to reduce demand for electric cars as it increases their lifetime cost,” the report says.
“To meet the mandate, manufacturers would therefore need to respond through lowering prices or reducing sales of non-EV vehicles.”
Overall, the charge is expected to result in about 440,000 fewer electric car sales, though other government policies could help offset around 130,000 of those.
Because of this drop in sales and slightly lower driving distances, the total money raised by the charge could be £200m less by 2030-31.
Delvin Lane, chief executive of InstaVolt which develops and installs chargers, said the tax could discourage people from switching to electric cars.
He said drivers without home chargers were already paying more in tax for public charging, and rural and low-income drivers would be disproportionately affected.
“We urge the government to work closely with the charging and automotive sectors to co-design a fair, future-proof system that maintains incentives to switch to zero-emission vehicles while ensuring sustainable road taxation.”
Edmund King, president of the AA, said: “The Budget has put drivers at a fork in the road with the chancellor announcing major tax proposals for EV owners.
“Drivers fully understand that the government needs to get the balance right between raising cash for roads investment, whilst ensuring it doesn’t slow down the transition to electric cars in order to meet environmental targets.”