Budget 2025 – what's changing for EV drivers?

Chancellor Rachel Reeves has unveiled major reforms for electric vehicle owners in the 2025 Budget, including a mileage-based tax from 2028, a £1.3bn extension to the electric car grant, and fresh investment in charging infrastructure. 

While the government says the measures balance revenue needs with continued EV support, industry leaders warn the new tax risks slowing the UK’s transition to zero-emission motoring.

Mileage-based charging for EVs

Electric vehicle (EV) drivers will be subject to a new “mileage-based charge” from April 2028, in order to offset any declines in fuel duty as electrification continues.

The eVED charge will apply to both battery electric cars and plug-in hybrids, marking a significant shift in how zero-emission motoring is taxed in the UK.

Battery electric vehicles will incur a charge of 3p per mile in addition to existing road taxes, while plug-in hybrids will be charged 1.5p per mile during the 2028–29 financial year. 

To continue to incentivise the EV market, the rate of eVED paid by battery electric vehicle drivers will be half the fuel duty rate paid by the average petrol/diesel driver.

The consultation document suggests that motorists will estimate their mileage for the year ahead, pay an upfront charge based on their estimate or spread their payment across the year, and then submit their actual mileage at the end of the year to trigger a reconciliation. Motorists will have their mileage checked annually.

The new levy is expected to generate £1.1 billion for the Treasury in its first year, rising to £1.9 billion by 2030 as more EVs join the roads.

However, the Office for Budget Responsibility warns that the tax could have a cooling effect on the UK’s transition to electric motoring. The organisation forecasts 440,000 fewer EV sales over the next five years due to the mileage charge. Government incentives for cleaner vehicles are expected to soften the impact, but only partially, boosting sales by an estimated 130,000 units.

The mileage charge follows another major policy change earlier this year, when electric vehicle owners began paying Vehicle Excise Duty (VED) for the first time, ending a longstanding tax exemption for zero-emission cars.

A consultation has been published to gain opinions on how the system will work, with the government expected to provide further detail on how the new system will be implemented.

Extension to the electric car grant

Chancellor Rachel Reeves has announced a £1.3 billion additional funding for the electric car grant - extending it to 2030.

Announced in the 2025 Budget, this takes the total funding for the grant to £2 billion.

The electric car grant was announced in July and gives discounts of up to £3,750 at the point of sale for new eligible electric cars priced at or under £37,000.

The grant level is £1,500 or £3,750 depending on the vehicle's environmental score.

The government recently announced there are 39 models of electric vehicles eligible for the Electric Car Grant. 

But there only four models that are eligible for the higher grant level of £3,750. These are the Citroën ë-C5 Aircross Long Range; Ford E-Tourneo Courier; Ford Puma Gen-E; and Nissan LEAF.

The government says that over 35,000 drivers have already used the grant to make the switch since it launched in July.

Chancellor Rachel Reeves also announced a further £200m to accelerate the rollout EV charging in the Budget.

Other announcements

Fuel duty will be frozen at its current rate until September 2026 - increasing by 1p from 1 September 2026, 2p from 1 December 2026, and 2p from 1 March 1 2027.

The government has also announced it will be raising the threshold at which new EVs pay the VED Expensive Car Supplement from £40,000 to £50,000, which it says will save over a million EV drivers £440 per year.

It will also introduce a ten-year 100% business rates relief for EV chargepoints and EV-only forecourts, alongside a one-year extension to 100% First Year Allowances for zero emission cars and electric vehicle chargepoint infrastructure.

The government has also said it will delay changes to benefit-in-kind rules for Employee Car Ownership Schemes until April 2030. For those still in contracts at that time, transitional arrangements will also be put in place to provide additional support.

Industry reaction

Vicky Edmonds, CEO of EVA England, said of the pay-per-mile scheme: "This is completely the wrong time to be taxing EV drivers when they still make up only 5% of vehicles on UK roads. We have made tremendous progress to convince more and more drivers that EVs can and do truly work for them, and we genuinely welcome today's announcements to increase the threshold for the luxury car tax for EVs, and to provide more money for subsidies for drivers and charging. 

"It is also good to see, finally, a promised future increase in fuel duty to encourage more drivers across to electric. But even with that, a Pay per Mile scheme in two years is unnecessarily rocking the boat at such a pivotal point for the market. We are willing to work with Government to ensure EV drivers pay their fair share, but this must be introduced sensibly to avoid slamming the brakes on the transition to electric vehicles."

Paul Hollick, chair, Association of Fleet Professionals, said about the pay-per-mile scheme: "This idea has been mooted ever since fleets started adopting electric cars in large numbers and was widely trailed in the press ahead of the Budget. What is needed now is a conversation across the fleet sector about what we want from such a scheme in terms of its timetable and implementation - a dialogue where we expect the AFP to take a central role. 

"Initially, our main concern is that it shouldn’t arrive in a form that could hamper electrification or cause any hesitation among potential business and private EV buyers. We’re looking at a point two-and-a-half years away, which at least creates time and space for serious discussion."

Mike Peirce, Executive Director of Systems Change at global non-profit Climate Group, said: “Make no mistake, by adding a pay-per-mile tax on EVs, the Chancellor is gambling with the UK’s EV market just as it’s finding its muscle.” 
 
“It threatens the Government’s approach to reducing emissions and reaching its own ZEV Mandate. In a highly competitive global race for electric vehicle investment this will leave investors confused.”

Tom Middleditch, Sustainability spokesperson at Europcar: “The Chancellor is stuck between a rock and a hard place – she needs to find new routes for revenue generation but also needs to encourage adoption of net zero mobility.  It’s not surprising, therefore, that the proposal for an EV pay-per-mile charge was announced. We have a deep concern that a tax on mileage of electric vehicles will create doubt in people’s minds and be another deterrent to adoption of zero tailpipe emissions motoring.  

“It is also unclear at this stage exactly how this would be implemented for rental vehicles. Rental is an effective transitionary solution to EV adoption, helping employers make the switch in a way they can afford, and which fits with business requirements.  It also gives private motorists the opportunity to learn about electric motoring in real-world conditions that dealer test-drives simply can’t provide. We will, therefore, actively work with relevant industry bodies to respond to any government consultation to ensure that the broad impact of an EV mileage tax is fully understood.”