Among the slate of smaller tax increases announced in the budget, Chancellor Rachel Reeves introduced a new pay-per-mile tax for electric vehicles, representing a significant policy shift as the government grapples with declining fuel duty revenues. This measure acknowledges the long-term fiscal challenge posed by the transition away from petrol and diesel vehicles, which currently generate substantial tax revenue.
The electric vehicle tax is designed to ensure that as more drivers switch to zero-emission vehicles, the government maintains a revenue stream for road infrastructure and maintenance. Currently, electric vehicle owners avoid fuel duty entirely, creating an increasingly unsustainable situation as adoption rates accelerate. The per-mile approach attempts to create a more equitable system based on actual road usage rather than fuel consumption.
This policy represents part of the government’s broader strategy of implementing multiple smaller tax increases to build fiscal headroom beyond the major threshold freeze measure. By diversifying revenue sources, Reeves aims to reduce reliance on any single tax increase while demonstrating that contributions are being sought from various sectors and activities rather than solely from working people’s income.
Environmental advocates have expressed mixed reactions to the electric vehicle tax, with some concerned it might slow the transition away from fossil fuels while others acknowledge the need for sustainable road funding mechanisms. The government maintains that the tax level will be calibrated to avoid discouraging electric vehicle adoption while ensuring fair contributions to road infrastructure from all users.
The introduction of this tax, alongside increases on gambling companies and high-value properties, illustrates the government’s approach of targeting multiple revenue streams to fund its priorities. These measures collectively contribute to the fiscal space needed for major policy decisions like scrapping the two-child benefit cap while maintaining commitments to public service investment and deficit reduction.