The Pay Per Mile Tax Could Cost The Economy £4.8 Billion

A coalition of industry groups has written to the Treasury warning that the government’s planned pay-per-mile tax on electric vehicles could end up costing the economy far more than it raises. In a worst-case scenario, the levy could inflict a £4.8 billion hit on the UK economy in 2028, according to analysis by Beama, the trade body representing energy infrastructure and EV charging companies.

The letter, sent to Exchequer Secretary Dan Tomlinson, was signed by Beama, ChargeUK, EVA England and REA, representing charging infrastructure companies, EV drivers and renewable energy businesses respectively. Their core argument is straightforward: if the tax discourages people from buying electric vehicles, the Treasury loses far more in VAT revenue and economic activity than it gains from the per-mile charge itself.

The government announced the Electric Vehicle Excise Duty, or eVED, at the November 2025 Budget. From April 2028, fully electric vehicles will pay 3 pence per mile and plug-in hybrids will pay 1.5 pence per mile, on top of the standard VED road tax. The Treasury expects eVED to raise £1.1 billion in 2028-29, rising to £1.9 billion by 2030-31. For an average EV driver covering 8,500 miles per year, that works out at roughly £255 annually.

What The Industry Is Actually Warning

The £4.8 billion figure is a worst-case scenario, not a prediction. It assumes that the tax causes a sharp decline in EV purchases, mirroring the kind of collapse seen in other countries that introduced similar levies, and that drivers who would have bought an EV do not switch to buying a petrol or diesel car instead. In that scenario, the lost VAT revenue on new car sales, combined with reduced investment in charging infrastructure and the knock-on effects across the supply chain, would dwarf the revenue raised by eVED itself.

Even in less extreme projections, Beama’s research suggests the Treasury could suffer a £630 million drop in VAT revenue in 2028 alone if EV sales slow significantly. Electric vehicles are on average £6,000 more expensive than their petrol and diesel equivalents, meaning each lost EV sale costs the Treasury more in VAT than a petrol or diesel purchase would generate.

Matt Adams of Beama said the timing of the policy is the core problem.

“Introducing the pay-per-mile policy early is a fiscal own goal,” Adams said. “It will slow EV uptake, reduce EV charging investments and cost the UK economy more than the Treasury stands to raise with the taxation.”

It Has Already Gone Wrong Elsewhere

The letter points to two countries that introduced similar distance-based taxes on electric vehicles and saw immediate consequences.

Iceland introduced a per-kilometre charge on EVs in January 2024. In the same year, new EV sales fell by 75%. The tax was part of a broader package that also removed the VAT exemption on electric vehicles, but the effect was dramatic and immediate. A market that had been rapidly electrifying reversed direction almost overnight.

New Zealand introduced its own distance-based levy on EVs and saw a 50% drop in electric car sales. The pattern was the same: a tax designed to fill the revenue gap left by declining fuel duty ended up suppressing the very transition it was supposed to fund in the long run.

The UK’s eVED is not identical to either scheme. The rate is lower, and the government has maintained other EV incentives including a £3,750 grant on new electric cars and over £3 billion in investment in manufacturing and charging infrastructure. But the direction of the warning is clear: taxing electric miles too early in the transition risks stalling it entirely.

Why This Affects Buyers Right Now

The tax does not arrive until April 2028, but the industry groups argue that its announcement is already affecting purchasing decisions. Drivers who were considering switching to electric are factoring eVED into their running cost calculations and finding the financial case harder to justify. The annual saving on fuel that made EVs attractive is being eroded by a combination of eVED, the introduction of standard-rate VED on electric cars, and the expensive car supplement hitting many EV models priced above £40,000.

For anyone currently weighing up whether to buy an EV before 2028, the maths has changed. An electric car bought today will still face the per-mile charge from 2028. It is not a tax on new purchases. It applies to every electric vehicle on the road from that date, regardless of when it was bought.

Jarrod Birch, head of policy at ChargeUK, said the government should be strengthening the incentives rather than undermining them.

“EVs are experiencing a surge of interest as an alternative to roller-coaster petrol prices,” Birch said. “Government should be doubling down on the transition by making buying and charging an EV affordable for all.”

The Treasury’s Position

A spokesperson for the Treasury said the government remains committed to the EV transition.

“This Government is committed to the EV transition, boosting support to save drivers up to £3,750 on a new car and investing over £3 billion into UK manufacturing and more charging points,” the spokesperson said.

The government’s argument is that eVED is necessary to replace declining fuel duty revenue as more drivers switch away from petrol and diesel. Without it, the Treasury faces a growing hole in its finances that would need to be filled through other taxes. The question the industry letter raises is whether filling that hole too early will end up making it larger.

What Happens Next

The eVED consultation closed earlier this year and the government has confirmed the policy will proceed as planned from April 2028. The system will work through estimated mileage declared at VED renewal, reconciled against actual mileage recorded at MOT tests. Cars under three years old that are not yet due an MOT will self-report their mileage.

The industry coalition has not called for eVED to be scrapped entirely. Their argument is about timing. They want the charge delayed until EV adoption is further advanced and the market is less sensitive to additional costs. Whether the Treasury listens will likely depend on what happens to EV sales over the next two years. If uptake continues to grow despite the announcement, the government will press ahead. If sales plateau or fall, the pressure to delay will intensify.

For drivers, the practical takeaway is simple. The per-mile charge is coming. It will add roughly £255 per year for an average driver. That cost needs to be factored into any decision to buy an electric vehicle between now and 2028, because it will apply from day one of the scheme regardless of when the car was purchased.

Sources:

• Beama, ChargeUK, EVA England and REA letter to Treasury (via EV Fleet World)
• FCA consultation on eVED
• House of Commons Library, electric vehicle excise duty
• The UK government is planning the biggest shake-up of driving laws in years