Is fairer vehicle taxation in sight?

The Campaign for Better Transport’s Isobel Duxfield looks at the planned Electric Vehicle Vehicle Duty

The way electric vehicles are taxed is set to change with a new electric Vehicle Excise Duty (eVED) set to be introduced in 2028. What this will mean for drivers?

Private cars may be the only viable option in some areas, but where there is choice, the comparative cost of travel strongly influences how people get about. While electric vehicles (EVs) produce no tailpipe emissions, making them crucial for decarbonisation, they still contribute to congestion, parking stress and pollution from tyre and break wear.

For years, EVs have benefited from tax exemptions and grants to encourage uptake. Yet their sale price continues to drop – with new EVs now cheaper than petrol models – and the cost of electricity has become even more favourable to the cost of petrol and diesel.

This means that EVs are continually becoming cheaper to run, and in some cases may be more cost-effective than public transport options. In fact, experience in Norway shows leaving EVs untaxed leads to a 10-20 per cent rise in car trips.  That’s why, as more and more people move to EVs, it is vital drivers pay their fair share.

The transition to EVs also creates problems for the Treasury. Although VED now applies, nothing has replaced fuel duty. This could create a £27 billion revenue gap by 2040 – roughly half the defence budget. We’ve campaigned for years for fairer vehicle taxation, so we were pleased when last year’s Budget included the introduction of electric Vehicle Excise Duty (eVED) in 2028.

What is eVED?

eVED is a new 3p-per-mile charge for EVs – roughly half the rate petrol and diesel drivers currently pay in fuel duty – and 1.5p-per-mile for hybrids. Drivers will estimate their mileage at the start of each year and pay the charge alongside their VED, with the mileage verified at the annual MOT. It is precisely the simple and measured approach we advocated. 

Is it an added VED/road tax for EVs?

No, eVED is being introduced as a replacement tax for fuel duty for EVs and hybrids – the more you drive, the more you pay. It is called eVED, as it will be administered and collected alongside VED, but in fact it is separate from VED tax. 

How will the mileage be checked?

Mileage will be checked via odometer reads at the annual MOT. This solution is simple, easy to administer and privacy friendly, but it requires estimating and paying for mileage in advance, which may not suit everyone. We would like to see the added option of automatic readings via the vehicle’s telematics to enable precise billing on a monthly basis. Having both these options would mean drivers could choose what suits them best. 

Will it make EVs less attractive?

While eVED will add to the cost of driving an EV, analysis suggests that, even with a 3p per mile charge, EVs would still be over £1,000 a year cheaper on average to run than petrol cars. 

How can the government make sure people keep buying EVs?

With driver interest in EVs increasing due to the fuel crisis, further measures, such as social leasing schemes, targeted grants and lowering the cost of public charging, can all help further support sales of EVs, particularly among low-income households. 

Why now?

We think eVED is an important step in the right direction towards fairer taxation. Delaying the implementation of eVED would make it harder to implement in future, as EV drivers would make up a bigger proportion of the population. 

What’s next?

The government is currently considering the responses from a public consultation on eVED. We will continue to work with the Government and MPs to help ensure the new scheme works for drivers.

For more on the 13 most commonly asked questions about eVED, see our briefing: Electric Vehicle Excise Duty: Your questions answered. 

Isobel Duxfield is research and policy manager at the Campaign for Better Transport