Motoring tax rises will concern hard-pressed households

RAC Foundation: Fuel duty to rise and 3p per mile charge coming for electric cars, writes Steve Gooding

Electric car drivers face paying hundreds of pounds more per year from 2028 after the Chancellor announced plans to impose a per-mile charge for those vehicles.

Drivers of the UK’s 30 million petrol and diesel cars are also set to see their bills rise as fuel duty rates are set to be unfrozen.

In the Budget 2025 the chancellor Rachel Reeves said: “The government will extend the temporary 5p fuel duty cut for a further five months, with the cut being reversed in three stages: 1p on 1 September 2026, 2p on 1 December 2026 and 2p on 1 March 2027. This will return rates to pre-March 2022 levels. The planned inflation increase for 2026-27 will not take place, with the government uprating fuel duty rates by Retail Prices Index (RPI) from April 2027.”

As for taxes on electric cars and plug-in hybrids: “The government is introducing  Electric Vehicle Excise Duty (eVED), a new mileage charge for electric and plug-in hybrid cars, with effect from April 2028. Drivers will pay for their mileage on a per-mile basis alongside their existing Vehicle Excise Duty. Electric cars will pay half the equivalent fuel duty rate for petrol and diesel cars, and plug-in hybrid cars will pay a reduced rate equivalent to half of the electric car rate. The government has published a consultation which provides further detail on how eVED will work and seeks views on its implementation. The consultation will remain open until 18 March 2026.”

The RAC Foundation’s view

As the Treasury watched its income from fuel duty ebbing away it was inevitable that the hunt would be on to backfill its coffers in some way, including from electric vehicles.

By our calculations a 3p per mile charge for EVs looked likely to leave a gap from the annual revenue Chancellors have come to expect from fuel duty, so it’s unsurprising that in parallel the Treasury has looked to increase the level of fuel duty as a way to cover a shortfall that could otherwise have been as much as £2bn per annum by the end of the decade.

For all the furore over the pence per mile charges for electric vehicles, including plug-in hybrids, it is the defrosting of the freeze on fuel duty and the promise of further index-linked increases to come that will have been greeted with concern by the drivers of the 30 million cars on the UK’s roads that run on petrol or diesel, and for whom the pump price of fuel remains a significant element of their hard-pressed household budgets.

Steve Gooding is director of the RAC Foundation