Pay-per-mile tax explained: How does road pricing work, is it a 'fair' system and what could it do to EV demand?

Chancellor Rachel Reeves is expected to announce a pay-per-mile road pricing system for electric vehicles (EVs) in an upcoming budget statement. This move aims to address a projected £40 billion fiscal deficit in Treasury coffers due to the decline in fuel duty and emissions-based vehicle excise duty revenue as more people switch to electric cars. The proposed system, dubbed 'VED+', would charge EV owners 3 pence per mile driven, in addition to the existing annual vehicle excise duty. Hybrid car drivers would also face a charge, though at a lower rate. The plan is for this system to be implemented from 2028, following a public consultation. The method of tracking mileage is anticipated to be less invasive than a black box, with drivers likely asked to estimate their annual mileage and pay accordingly, with potential adjustments for over or underestimation. This new tax is expected to raise an estimated £1.8 billion by 2031. Ministers are framing this as a matter of fairness, arguing that EV drivers should contribute to road maintenance and taxation, similar to petrol and diesel car owners who pay fuel duty. Proponents suggest that even with this new charge, EVs will remain significantly cheaper to run annually than petrol cars, and that road pricing is an effective way to manage congestion and pollution while securing government revenue. However, critics warn that introducing such a tax at this stage could be poorly timed, potentially stifling already fragile public demand for EVs, complicating manufacturers' efforts to meet government sales targets, and impacting the growth of charging infrastructure. The proposed pay-per-mile system is expected to disproportionately affect drivers in rural areas ... download the app to read more