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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.”

Tonn Nua has been designated by the Irish government as the only site for bidders under the Offshore Renewable Electricity Support Scheme (ORESS) Tonn Nua, Ireland’s second offshore wind auction. The auction offers a partially indexed 20-year contract for difference (CfD), and the right to apply for a seabed lease and grid connection for the winning bidder. The contract for difference is to support the development of a 900 MW fixed-bottom offshore wind farm for the Tonn Nua site.

The Tonn Nua site is in an early phase of development. The project now needs to be assessed, matured and successfully pass all gates in the JV’s stage-gate process, including meeting the value creation criteria. Final investment decision is expected around 2031 and first power in the mid-2030s.

Alana Kühne, Head of Region Europe Development at Ørsted, said:
“We commend the Irish government for running a successful auction continuing the support for the development of offshore wind in Ireland. Offshore wind will play an important part in the future Irish energy system ensuring green, affordable and secure energy. We will continue to work with our joint venture partner ESB to carefully assess and progress this early-stage development opportunity, including ensuring that the project lives up to our value creation criteria.”

Jim Dollard, Executive Director for Generation & Trading at ESB, commented:
“ESB is delighted with the outcome of the ORESS Tonn Nua auction. It secures a clear pathway for the development of a significant project off the coast of County Waterford marking another important step toward Ireland’s renewable energy and Net Zero ambitions. We look forward to working with our partners to deliver a project that provides significant energy security and price certainty for Irish consumers.”

The Tonn Nua project 
The awarded project is for a fixed-bottom offshore wind development at the Tonn Nua maritime site, located off the coast of County Waterford.  

ORESS Tonn Nua is Ireland’s second support regime for offshore renewable energy development, and the first offshore wind auction under the new state-led planning regime.  

The next step for the project is to seek a Maritime Area Consent and Marine Usage Licence from the Irish Maritime Area Regulatory Authority in order to commence surveying and assessment ahead of submitting a planning application for the development.

About the CfD
The two-way CfD has been awarded at a strike price of EUR 98.719 per MWh. The partially indexed CfD will run for 20 years from wind farm commissioning expected in the mid-2030s.  

Ireland’s transmission system operator (TSO) EirGrid will build the transmission assets (offshore and onshore substations and export cables). The Tonn Nua Offshore Wind Farm must be operational by the longstop date of 1 January 2037 under the CfD terms and conditions.

About the joint venture
The joint venture is jointly owned by ESB and Ørsted. In 2023, ESB and Ørsted entered a 50/50 partnership to jointly develop a pipeline of offshore wind projects off the Irish coast. Tonn Nua is the first offshore wind development site progressed to auction under the partnership.

For further information, please contact:

Ørsted Global Media Relations 
Kathrine Westermann  
+45 99 55 57 21  
kawes@orsted.com  
  
Sarah Thatt-Foley  
+353 (0)83 156 5690  
sarfo@orsted.com  
  
Ørsted Investor Relations  
Valdemar Hoegh Andersen  
+45 99 55 56 71  
Ir@orsted.com

ESB media contact  
Aoiffe Llewellyn
aoiffe.llewellyn@esb.ie

About Ørsted  
Ørsted is a global leader in developing, constructing, and operating offshore wind farms, with a core focus on Europe. Backed by more than 30 years of experience in offshore wind, Ørsted has 10.2 GW of installed offshore capacity and 8.1 GW under construction. Ørsted’s total installed renewable energy capacity spanning Europe, Asia Pacific, and North America exceeds 18 GW across a portfolio that also includes onshore wind, solar power, energy storage, bioenergy plants, and energy trading. Widely recognised as a global sustainability leader, Ørsted is guided by its vision of a world that runs entirely on green energy. Headquartered in Denmark, Ørsted employs approximately 8,000 people. Ørsted’s shares are listed on Nasdaq Copenhagen (Orsted). In 2024, the group’s operating profit excluding new partnerships and cancellation fees was DKK 24.8 billion (EUR 3.3 billion). Visit orsted.com or follow us on LinkedIn and Instagram. 

About ESB  
ESB was established in 1927 as a statutory body under the Electricity (Supply) Act, 1927. With a holding of 97.1%, ESB is majority owned by the Irish Government. The remaining 2.9% is held by the trustees of an Employee Share Ownership Plan. As a strong, diversified utility, ESB operates across the electricity market, from generation through transmission and distribution, to supply of customers, in addition to using our networks to carry fibre for telecommunications. ESB is the leading Irish utility with a regulated asset base of approximately €14 billion (comprising ESB Networks €11 billion and NIE Networks €3 billion), a 25% share of generation in the all-island market, and retail businesses supplying electricity and gas to almost 1.9 million customer accounts throughout the island of Ireland and Great Britain. During the year ended 31 December 2024, ESB Group employed an average of almost 9,600 people.

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