Reflections on the 2025 Budget

Jonathan Murray, acting managing director, Zemo Partnership, reflects on the changes announced in the 2025 Budget

On reflection, the 2025 Budget will surely be considered a significant moment in terms of road vehicle taxation. We’ve known for a long time that something had to change because – as the Exchequer Secretary pointed out in his foreword to the eVED consultation published alongside the Budget - if things stayed the same, then by 2030 around one in five car drivers would be paying no fuel duty at all, while other motorists would continue to contribute an average of £480 a year.

The new 3p per mile charge for EVs (half for PHEVs) is expected to come into effect in April 2028. The Government is clearly aware of the risk of sending mixed messages as it seeks to encourage EV uptake (according to the ZEV Mandate trajectory) and was at pains to point out that the rate of eVED paid by EV drivers will be half the fuel duty rate levied on the average driver of a petrol or diesel vehicle. In the eVED consultation, the Government also includes a long list of measures being taken to encourage EV uptake, including: more money for the Electric Car Grant; raising the threshold for the Expensive Car Supplement; delaying changes to benefit-in-kind rules until 2030; increasing support for the development of charging infrastructure plus several other supportive mechanisms.

There’s much that can be debated around whether the proposed per mile charge is set at the right level, if its introduction is too early or not and whether it could be better designed to address wider policy objectives, but it’s hard to argue that something like this isn’t necessary - and quite soon.

The threat of future EV taxation may put off some private buyers, but those looking for a lower total cost of ownership are much less likely to be deterred.

Average battery prices for EVs fell again in 2025 according to BloombergNEF (by a whopping 13% in China; 8% in Europe) and this will surely bring further downward pressure on new EV prices. The Energy & Climate Intelligence Unit (ECIU) says the sticker price for new EVs is falling and that some time between 2026 and 2028 they will reach price parity with ICE counterparts as well as being significantly cheaper to run. Recent analysis by ECIU shows that even with a 3p per mile tax, new EVs would still be around £1,000 cheaper to run per year, on average, than petrol cars.

Some separate work by ECIU also caught my eye this month: this found that as a result of the widespread adoption of smart meters in the UK, British EV drivers are benefiting more than German counterparts from cheap overnight and flexible electricity tariffs. With overnight charging possible in the UK for as little as 7p/kWh, EV running costs can be as low as 2p per mile compared to 15p per mile for a petrol or diesel car.

The UK has a more established and widely adopted market for household off-peak and dynamic tariffs than Germany with around 69% of domestic meters now operating in ‘smart mode’ compared with 20% in Germany. This means that British EV drivers are, on average, saving over £540 a year more than German equivalents.

It’s good to know that, in this area at least, Britain is ahead of the competition!

So, my conclusion? While there were some mixed messages in the Budget, the overriding message is clear: electric vehicles save you money and they will go on doing so.