Introduce EV mileage charge

Policy baseline

Budget 2025 introduces Electric Vehicle Excise Duty from April 2028. Electric cars pay a mileage supplement alongside VED.

• Targets EV and plug-in hybrid drivers.
• Protects motoring revenue as fuel duty erodes.
• Could slow EV adoption at the margin.

Core trade-offs

The direct beneficiaries are road-funding sustainability and taxpayers. The costs fall mainly on ev drivers and plug-in hybrid owners. The main economic question is higher running costs may slow transition.

• Road-funding sustainability and taxpayers gain most directly.
• Costs fall mainly on ev drivers and plug-in hybrid owners.
• Key risk: higher running costs may slow transition.

Fiscal impact by 2029-30

-GBP 2.5bn to -GBP 0.3bn. Central estimate: -GBP 1.1bn.

• Positive numbers mean net fiscal cost; negative numbers mean Exchequer savings.
• Main channel is the scored tax, spending or delivery change.
• Offsets depend on tax receipts, behaviour and pass-through.
• Range reflects uncertain implementation and economic response.
• This is not an official costing.

Economic impact by 2029-30

• Jobs: Little direct job effect; sector-specific taxes can reduce hiring in affected industries.
• Wages: Legal taxpayers may shift costs to workers, owners or consumers over time.
• Prices: Some pass-through likely where market power or fixed demand exists.
• GDP / productivity: Usually mildly negative before spending use; stronger if investment or mobility responses rise.

Assessment

This is a real trade-off, not a free gain. Road-funding sustainability and taxpayers benefit, while ev drivers and plug-in hybrid owners bear most costs. Overall output depends on behaviour, capacity and pass-through.

Confidence: Medium-low. Higher on the policy target and fiscal channel; lower on behaviour, pass-through and economy-wide effects.

Main risks

• Behavioural response: Avoidance, timing and relocation can reduce receipts.
• Incidence uncertainty: Legal taxpayers may shift costs to workers, consumers or investors.
• Investment risk: Higher taxes can reduce investment where returns are mobile.

Safeguards

• Use HMRC microsimulation before legislating.
• Close avoidance routes before rate rises.
• Review receipts and investment annually.

Academic evidence

UK government evidence

Sources

• PolicyLens illustrative scenario methodology for introduce ev mileage charge Internal - PolicyLens, 2026
• Budget 2025 policy costings UK government costing - HM Treasury, 2025
• Budget 2025 UK government budget - HM Treasury, 2025
• Estimating the Effect of a Gasoline Tax on Carbon Emissions Academic article - Davis and Kilian, American Economic Journal: Economic Policy, 2011
• Does Britain or the United States Have the Right Gasoline Tax? Academic article - Parry and Small, Journal of Urban Economics, 2005
• Change: Labour Party Manifesto 2024 Party policy source - Labour Party, 2024

Other Labour policies

• Raise employer National Insurance
• Apply VAT to private school fees
• Replace non-dom tax status
• Raise capital gains tax rates
• Extend the Energy Profits Levy
• Capitalise the National Wealth Fund
• Capitalise Great British Energy
• Expand the Warm Homes Plan