Budget leaves drivers at a fork in the road

BUDGET 2025: The AA’s Edmund King looks at impacts on motorists

Following today's Budget, The AA believes drivers are at a fork in the road as freezes in fuel duty are announced alongside significant tax changes for electric vehicle owners.

Maintaining the 5p freeze in fuel duty is much welcomed and helps everyone, saving drivers more than £3 a tank, as well as playing a role in keeping inflation down as well as the cost of goods and services.

However, the chancellor has indicated that electric car drivers will need to make more of a fiscal contribution with a proposed pay-per-mile tax. With new EV sales and climate targets to meet, eventually the billions in revenue raised from fuel duty will need to be replaced. There will be a nervousness amongst drivers about how any scheme will work and if it will set the rate which is comparable to running a petrol or diesel car.

Drivers fully understand that the government needs to get the balance right between raising cash for roads investment, whilst ensuring it doesn't slow down the transition to electric cars in order to meet environmental targets.

For more than 120 years, The AA has been the voice of the motorist and today's Budget signals a huge moment in the history of UK motoring. We will work with the government to ensure that whatever people drive, they will be treated fairly. 

Fuel duty

Maintaining the 5p freeze in fuel duty for now is much welcomed and helps everyone, saving drivers more than £3 a tank, as well as playing a role in keeping inflation down as well as the cost of goods and services. However, drivers will brace themselves for duty hikes from next September. 

EV pay per mile

We recognise that fuel-duty revenue is declining as drivers switch to electric vehicles. 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.

Getting the timing right is crucial, and there will be concerns that should pay-per-mile for EVs be introduced too soon it may put slow down the switch to electric cars. 

Drivers will naturally have questions about such a scheme, which is why The AA will lead the charge for a fair and transparent system which is easy to understand.

We will also need protections for certain groups, like carers who use their car for work and rural drivers who are more car dependent. 

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. 

EV charging infrastructure

The £200m investment to help public and domestic charging is much needed, but more help is required. Maintaining the 100% business rate discount for EV charging bays will help keep public charging costs down, but the chancellor should’ve gone further by mirroring domestic VAT energy rates across the public network. 

EV luxury VED being uprated

With new electric cars costing more than their combustion alternatives, it makes sense to uprate the level of car tax to £50,000. This will take pressure off those looking to own an EV who were put off by the extra costs. 

Insurance Premium Tax

Maintaining the IPT rate is the right call. Insurance is a legal requirement, not a luxury, and keeping costs in check helps reduce the risk of uninsured driving.

Edmund King is president of The AA