Autumn Budget: Pay-per-mile tax ‘completely wrong move’
Chancellor Rachel Reeves has hit electric vehicles with a pay-per-mile tax which will cost the average driver £255 per year and raise £1.1bn for the Treasury.
Reeves delivered the expected 3p pay-per-mile tax for electric vehicles (EVs) at today’s Budget, which she framed as a fairness measure to balance the costs facing drivers.
The OBR, the independent fiscal watchdog, warned this will hit electric vehicle sales, while it offered warnings over plummeting receipts from fuel duty as drivers switch to green cars.
Industry figures have warned the tax – combined with Reeves’ extension of the freeze on fuel duty – will slow the transition to electric vehicles.
Paul Holland, managing director for UK/ANZ Fleet at Corpay, said: “This is completely the wrong move at the wrong moment. If you increase the cost of running an EV, people will simply delay switching.
“The Budget offers no new measures to help commercial operators upgrade vans, adopt cleaner fuels or manage rising energy costs.”
Car manufacturer Ford said the Budget sends a “confusing message at a critical moment” in the transition to electric vehicles.
Declan Doyle, CEO of Bidvest Noonan, told CityAM: “The government’s mixed messages on electric vehicles are creating uncertainty that risks stalling commercial adoption.”
Reeves extended the freeze on fuel duty until September next year in a move intended to ease cost of living pressures, which the OBR says will cost the Treasury £2.4bn next year.
This marks the 15th consecutive year of fuel duty freezes and the OBR warned the cumulative cost of fuel duty freezes has reached £120bn.
Fuel duty revenue is projected to decline from around 0.7 per cent of GDP to 0.1 by 2050 due to the switch to electric cars, with the watchdog highlighting the “fiscal risk” of this trend.
EV tax ‘short-sighted and regressive’
The OBR also warned Reeves’ pay-per-mile tax will hit the EV sector, resulting in 440,000 fewer vehicles to be sold in the next five years.
The Chancellor announced some measures designed to incentivise Brits to buy electric cars – including an increase to the expensive car supplement and the electric car grant – but the watchdog said this will offset the loss in vehicles sold by only 320,000 units.
Simon Virley CB, vice chair and head of energy and natural resources at KPMG, said: “The government has tough choices and understandably needs to start planning for the gap in fuel duty receipts that EVs will create, but it must ensure its policies work together, making the switch to electric both affordable and appealing for households.”
Asif Ghafoor, CEO of EV charge point operator Be.EV, described the pay-per-mile levy as “regressive and short-sighted”.
He said: “Charging a pay-per-mile tax on EV usage is a new hurdle to adoption that we can’t afford after years of slow, hard-won progress bringing EVs into the realm of affordability.”
Neil Maslen, senior manager at accountants HW Fisher, told CityAM the tax could stifle demand for electric vehicles which would push down costs and hit the profits of British manufacturers.
Announcing the EV tax, Reeves framed the measure as one of fairness: “Because all cars contribute to wear and tear on our roads […] I will ensure that drivers are taxed according to how much they drive and not just the type of car they own.
As well as the 3p rate on electric vehicles, hybrids will be subject to a 1.5p-per-mile levy, she confirmed.
The tax will contribute to Labour’s commitment to double road maintenance funding in England before the end of the Parliament, Reeves said.