6:43 am, November 27, 2025
The new pay-by-mile tax could see 440,000 fewer electric cars being sold over the next five years compared with previous forecasts.
The government’s independent fiscal watchdog, the Office for Budget Responsibility (OBR), has warned that the shift to EVs could slow because of the new tax.
In the chancellor’s Budget speech yesterday (Nov 26), Rachel Reeves announced that from April 2028 electric cars will have to pay 3p per mile, while PHEVs will be charged 1.5p per mile.
In its latest budget assessment – which was accidentally published even before the chancellor had begun her speech in the House of Commons – the OBR said the so-called ‘eVED’ will push up the overall cost of owning an electric car, thereby putting some buyers off from making the switch.
Its analysis suggests that the policy will cut demand because drivers will face higher lifetime running costs.
On current modelling, that translates into around 440,000 fewer electric cars being sold over the next five years compared with previous forecasts.
The government has tried to cushion this by pumping another £1.3bn into the Electric Car Grant.
But the OBR believes that this support would generate only about 320,000 extra EV sales, and not enough to fully cancel out the drop attributed to the new tax.
The watchdog also questioned the Treasury’s expectations of how much money eVED will rake in. It believes it’ll be lower than government estimates as EV motorists will drive fewer miles to avoid paying more tax every mile.
Soon after the pay-by-mile announcement in the Budget, the AA was quick to highlight it can help the government create a fair scheme for EV VED.
‘We recognise that fuel-duty revenue is declining as drivers switch to electric vehicles,’ said its president, Edmund King.
‘The AA is uniquely placed to assist government in designing a fair and transparent system. The challenge is clear: it must be simple, trusted, and equitable for all road users.’
King added: ‘Other considerations like appointing a truly independent body to determine the rate would help give confidence to drivers and improve the level of trust in the system.’
Other Budget announcements included the raising of the threshold that EVs have to pay the Expensive Car Supplement from £40,000 to £50,000, and the confirmation that ‘premium’ brands have been removed from the Motability scheme.
