Pay-per-mile tax on EVs risks undermining consumer confidence

BUDGET 2025: Chancellor has offered only limited support for the EV transition, says Sue Robinson of the National Franchised Dealers Association

The National Franchised Dealers Association (NFDA) represents franchised car and commercial vehicle dealers across the UK.

Chancellor Rachel Reeves has had to address a fiscal shortfall of around £30bn. Our sector employs approximately 600,000 people across multiple disciplines and must therefore be treated as a vital priority.

The announcement made today by the chancellor provide some optimism, for instance freezing fuel duty, but it also underlines that in many areas the government continues to fall short in delivering meaningful support for the automotive industry such as the pay per mile tax.

With the government now limiting itself to one fiscal event each year, the Budget carries greater significance and the sector has been anticipating clearer direction since Rachel Reeves’ first Budget in October 2024 and the Spring Statement in April 2025.

Registrations have fluctuated in a challenging financial climate and the transition to electric vehicles (EV) remains behind the pace required to meet ZEV Mandate targets. As such, there were undeniably missed opportunities in today’s measures, omissions that risk slowing the industry’s progress.

The following measures are set to impact the automotive retail sector: 

EV pay per mile tax

The government has introduced an electric vehicle pay per mile tax, discouraging EV sales.

Introducing additional costs for EV drivers risks undermining consumer confidence at a critical moment for the electric vehicle market. The Office for Budgetary Responsibility (OBR) estimate that this tax will result in £440,000 fewer EV sales, harming franchised dealer’s ability to sell and reach ZEV mandate targets. 

The lack of a clear plan to manage the fiscal impact of declining fuel and Vehicle Excise Duty (VED) revenues is concerning. Without targeted measures to support dealers, these changes risk slowing investment and placing additional strain on the sector during the transition to electric vehicles. 

Expensive Car Supplement

The government has increased the Expensive Car Supplement (ECS) from £40,000 to £50,000. An increase to the ECS for battery electric vehicles, from £40,000 to £50,000 from 1 April 2026, is welcomed. NFDA has previously called for the increase as the former threshold of the ECS was a disincentive to consumers looking to shift to EVs. 

Electric Car Grant

The government has committed an additional £1.3 billion to the Electric Car Grant. The NFDA welcomes the government’s extension to the Electric Car Grant by an additional £1.3 billion, which is expected to generate an extra 130,00 electric car sales.

Fuel duty

The government is maintaining a freeze on fuel duty at 5p per litre. A freeze on fuel duty provides stability for motorists and businesses during a period of continuous economic pressure. Keeping fuel duty at its current level helps protect household budgets and supports transport-reliant sectors. 

Employee Car Ownership Scheme (ECOS)

The ECOS removal has been delayed to April 2030. We have called for the government to reconsider scrapping the ECOS scheme in a letter to the Treasury warning that the proposed changes will have damaging consequences for the automotive sector and its employees. 

Motability Scheme

VAT exemptions have been cut on vehicles bought by the Motability scheme. Luxury brands such as BMW, Mercedes, Audi, Alfa Romeo and Lexus will be removed from the scheme. The NFDA notes the changes to the Motability scheme today, including the changes to vehicle eligibility. NFDA will work with its members to understand the full implications for dealers and their customers. 

Employer National Insurance Contributions

National Insurance Contributions have not increased and will continue to weigh on the sector. Rises in national insurance contributions have created additional challenges for dealers. NFDA is concerned that unless the government reforms these tax rises it will slow dealers’ growth and add further strain during an already economically difficult period.” 

Apprenticeship Levy

It is concerning that, once again, the chancellor has failed to reform the existing Apprenticeship Levy in this latest fiscal event. While we currently have around 12,000 apprentices in training, the sector continues to face a growing skills shortage, particularly of skilled technicians, an issue that a reformed levy could help address. It is frustrating to repeatedly call for changes to the lLevy without seeing measures that instil confidence in its effectiveness.
 
The NFDA acknowledges the headline details of this Budget and will keep members informed with our upcoming policy document. Post-Budget, we will continue to engage with policymakers at our parliamentary dinner in January.

Sue Robinson is chief executive of the National Franchised Dealers Association (NFDA)