As Rachel Reeves prepares to outline her upcoming Budget, the UK motoring industry is voicing strong concerns over a proposed “pay-per-mile” tax aimed at electric-vehicle (EV) drivers.

According to multiple reports, the Chancellor is considering a levy of around 3p per mile for EVs, potentially adding an average of £250–£300 to yearly costs for many drivers.

Why the tax?

The shift away from petrol and diesel is creating a significant hole in government revenues.

Fuel duty, long a key income stream, raised around £24 billion in previous years.

The independent Office for Budget Responsibility (OBR) estimates that by 2029, the freeze on fuel duty will cost the Treasury £15 billion, with EV adoption exacerbating the loss.

It is a problem that has been accepted for many years.

Still, previous governments have failed to decide on how to amend the vehicle road tax system to accommodate EVs, without discouraging their take-up.

With the tax base declining, ministers believe a mileage-based charge for EVs could help make road funding fairer since EV drivers currently bypass fuel duties entirely.

Under the emerging plan, the metered charge would be layered on top of vehicle excise duty (VED) and start no sooner than 2028, following consultation.

 

Caution, concern and critique

The trade body Society of Motor Manufacturers and Traders (SMMT) has described the measure as “entirely the wrong measure at the wrong time”, warning it could damage the UK’s delicate EV-market dynamics.

Car-makers argue that while the taxation of EVs is inevitable, the timing and structure of this levy are problematic when the industry is still scaling up to meet agreed global emission targets and banning new diesel nd petrol vehicles by 2035.

Executive comment from Volvo, Polestar and others signalled alarm that UK investment attractiveness could suffer.

Fleet operators and leasing firms also weighed in.

For example, Novuna Vehicle Solutions warned that charging EV drivers now would undermine wider incentives and slow uptake.

Meanwhile, consumer-advocacy groups noted that public confidence in EVs could take a hit if ownership suddenly appears costlier.

Balancing act

Proponents argue the new tax could bring equality between drivers: petrol and diesel users pay at the pump per mile; EV users currently pay little beyond a flat tax.

As one industry commentator noted, “there’s no easy EV equivalent of fuel duty” without a mileage regime.

Yet critics say that charging a mileage tax while still promoting EV adoption sends mixed signals.

The government still offers grants, and EVs remain cheaper to run overall, whether for refuelling or maintenance.

For instance, depending on usage and tariff, EVs may still offer savings of around £1,000 annually compared to petrol models, even with the extra mileage tax factored in.

 

Challenging politics

Much remains unclear about how the mileage tax would operate, including whether odometer-based declarations, real-time tracking, or predictive estimates would be used, what safeguards would limit burdens on low-mileage users, and how enforcement would be implemented.

Analysts highlight the political danger.

Motoring tax reforms are notoriously sensitive; a poorly calibrated system could alienate rural drivers, small businesses, and households that are heavily reliant on car use.

One think-tank commentator warned the policy could become a significant electoral liability.

The Chancellor may use the Budget to launch a consultation rather than implement immediately.

Industry voices are calling for clarity, phased rollout, transitional safeguards and assurances that the tax won’t penalise early adopters of EVs.

A sustainable model — widely favoured by stakeholders — would combine gradual taxation reform, ongoing incentives for EV uptake, and investment in charging infrastructure.

With the UK’s EV transition still in motion, timing and signalling may matter as much as the tax measure itself.