Millions of UK motorists are set to face a new annual road tax charge as the government moves to offset falling fuel duty revenues. Chancellor Rachel Reeves used her recent Budget to announce the introduction of a pay-per-mile system specifically targeting electric and plug-in hybrid vehicles.
How the New Road Charge Will Work
The new charge will come into effect from April 2028. Drivers of fully electric vehicles (EVs) will be charged 3 pence for every mile they drive, with the rate set to rise each year in line with inflation. Based on current average mileage figures, this will mean an extra £210 per year for the typical EV owner.
Plug-in hybrid vehicle drivers will also be affected. While the exact mechanism for hybrids is still being finalised, early estimates suggest they could pay an additional £120 per year in tax, assuming an annual mileage of around 8,000 miles.
According to motoring experts, drivers will likely have to estimate their yearly mileage in advance. The actual distance will then be recorded and verified during the vehicle's annual MOT test. For newer cars under three years old that don't require an MOT, a separate annual mileage check may be instituted.
Financial Impact and Market Consequences
The Treasury expects the new levy to generate significant revenue. The Office for Budget Responsibility (OBR) forecasts it will raise £1.1 billion in the 2028-29 financial year, increasing to £1.9 billion by 2030-31.
However, the OBR has issued a stark warning about the policy's potential side effects. The watchdog stated the charge is "likely to reduce the demand for electric cars" by increasing their lifetime ownership cost. Its modelling predicts the tax could reduce EV sales by up to 440,000, though this may be tempered to around 120,000 due to other incentives announced in the Budget.
The policy is a direct response to the erosion of the government's traditional fuel duty income, which has declined as more drivers switch to zero-emission vehicles. With approximately 1.4 million battery electric vehicles and 777,000 plug-in hybrids already on UK roads, the Treasury is seeking a new, sustainable revenue stream for road maintenance.
What Drivers Need to Know
For drivers who cover fewer miles than they estimate, there may be a silver lining. Experts suggest they could receive credit towards the following year's charge, ensuring the system is fair for those with lower annual mileage.
The move marks a significant shift in how road use is taxed in Britain, moving away from a system based on fuel consumption to one directly linked to distance travelled. It presents a new financial consideration for the millions of drivers who have already made the switch to greener transport or are contemplating doing so in the coming years.
