Government maintains commitment decarbonising road transport

BUDGET 2025: Jonathan Murray says Zemo will engage with introduction of mileage charge for electric cars

In a Budget with significant implications for the road transport sector, the chancellor has announced plans to introduce a three pence per mile charge for the use of electric cars from April 2028 (1.5ppm for plug-in electric hybrid vehicles – PHEVs). 

The Budget also announced that the 16-year freeze in fuel duties for petrol and diesel cars, will end in 2027, with the 5ppl 'temporary' cut being reversed in stages from September 2026. There is also additional funding to subsidise the purchase cost of electric cars and support the development of charging infrastructure.

Overall, this Budget clearly maintains the government’s commitment to decarbonising UK road transport. There’s additional funding to encourage the purchase of electric vehicles and improve our charging infrastructure, as well as invest in R&D and innovation for the next generations of clean vehicles.

The introduction of a per mile charge for electric vehicles has been anticipated (in one form or another) for a long time and is necessary to fill the ‘revenue hole’ from falling fuel duties. Implementation is still more than two years away and for most EV drivers there will still be considerable savings in terms of the total cost of ownership after the charges are introduced – particularly as the 16-year freeze on fuel duty for petrol and diesel cars is ending in 2026/7.

How well and effectively Electric Vehicle Excise Duty (eVED) is implemented is an important task ahead and one that Zemo and our partners are looking forward to engaging with.

The new eVED rate to be paid by electric car drivers from 2028 is proposed to be set at three pence/mile, equating to half the fuel duty rate paid by the average petrol/diesel driver, currently about £480 per year. (So the average EV driver can expect to pay around an extra £240/year from April 2028. PHEVs will be charged at half the per mile rate of battery electric vehicles – BEVs.)

The government says the eVED charge will be paid alongside drivers' existing VED payments; mileage for the year will be estimated with the balance corrected based on a mileage reading at the end of the year. The government says this process will minimise reporting requirements for taxpayers, whilst respecting motorists’ privacy. It says there will be no requirement to report where and when miles are driven, so there is no need for trackers in cars – one of the areas the government anticipated opposition.

The Budget also included a commitment to boost the Electric Car Grant and the EV charging sector by £1.5bn. Most (£1.3bn) will be taken up by the grant scheme (discounts are worth up to £3,750 on eligible cars) with £200m earmarked for charging initiatives.

The government anticipates that the added support for drivers to buy and operate electric cars will offset (at least some of) the impact of the new eVED charge on demand for EVs. Demand for BEVs and PHEVs should also be helped by the announcement that the long fuel duty freeze on petrol and diesel is to end.

In other Budget developments, the chancellor confirmed that there will be a review of the cost of public EV charging, looking at the impact of energy prices, wider cost contributors, and options for lowering costs for consumers. The review is scheduled to start early next year and last about six months. There will also be a consultation on permitted development rights for cross-pavement EV charging, which the government says will make gaining access to EV charging quicker and cheaper for households without driveways.

The Expensive Car Supplement threshold for electric vehicles was raised from £40,000 to £50,000. According to Autotrader, this means 57 more EV models will not have to pay an additional £425 annually from the second year of purchase to year five; the government says this will save over a million EV drivers £440 per year.
It was also announced that there will be a delay in changes to benefit-in-kind rules for Employee Car Ownership Schemes until April 2030. For those still in contracts at that time, transitional arrangements will also be put in place to provide additional support.

In addition, the government said it will invest a further £1.5bn to 2035 in the Drive35 programme, bringing capital and R&D funding to support the next generation of zero-emission technologies in the automotive industry in the UK to £4bn over the next 10 years.

Alongside the Budget, the Department for Energy Security and Net Zero announced a North Sea Future Plan for a fair, managed and prosperous transition acknowledging the transition to cleaner energy solutions and the impacts that this will have on workers in the North Sea. This includes plans to invest in growing clean energy industries “to build a prosperous and sustainable future for the North Sea”. It also includes a commitment to support the management of existing oil and gas fields for their lifespan and to introduce a new North Sea Jobs Service (to launch next year) offering end-to-end career support for oil and gas workers to take up new opportunities in growing Industrial Strategy sectors, from clean energy to defence, and advanced manufacturing.

Jonathan Murray is acting managing director of the Zemo Partnership