I have a new car. Only it’s not “new new” because depreciation on new cars is not, in my opinion, worth the benefit of the new car smell. No, my “new” car despite being less than six months old when I bought it is roughly half the cost it was when purchased by the original owner – Motability as it happens – in January of this year. Despite that, yours truly is paying the luxury tax until 2031, a wonderful £640 a year. Yes, I can feel the sympathy emanating from you, dear reader. Flowers and cards are acceptable as tokens of your pity at my plight. And no, it’s not a Tesla, so put those sharp implements down.
Back to reality though. EV’s had been exempt from that tax, but as ever, I’ve arrived at the party too late. The government’s relationship with electric vehicle owners is changing. First (like diesels, over fifteen years ago) we were encouraged to buy them. We were incentivised with exemptions, grants, and low benefit-in-kind tax rates. And now, as we arrive in sufficient numbers to actually affect public finances, the tone has shifted. The welcome mat is being quietly rolled up.
The fuel duty black hole
The numbers explain why. Fuel duty – the tax levied at the pump on every litre of petrol and diesel – has long been one of the Treasury’s most reliable revenue streams. As recently as 2019/20, it made up almost 7% of total UK tax receipts. The figure for 2025/26, according to the Office for Budget Responsibility, is around 2%.
In cash terms, fuel duty now raises roughly £24 billion a year – down from a peak that would have been considerably higher had rates not been frozen since 2011 and temporarily cut by 5p a litre in 2022. The freeze, extended year after year by successive chancellors nervous about the political cost of raising pump prices, has already cost the Treasury tens of billions in real-terms revenue. The EV transition is now compounding that loss structurally, not just cyclically.
The trend is clear in the HMRC data. Diesel receipts have declined as drivers switch to electric and hybrid vehicles, with diesel drivers paying a premium at the pumps for their fuel. Petrol, being cheaper, is more resilient as a consumer fuel of choice, but the direction of travel is the same. The OBR projects fuel duty revenues peaking at around £26 billion in 2028–29 before beginning to fall as EV volumes rise – and the government’s own Electric Vehicle Excise Duty (eVED) consultation warns that without intervention, revenues could halve to around £12 billion across the course of the 2030s. That £12 billion gap is, as the government’s own consultation documents note, equivalent to funding nearly 70% of all GP appointments in England in a year. Put in those terms, doing nothing was never really an option.
The cost of charging an EV
There’s then the issue of how EVs get charged. 80% of charging happens at home, where only 5% VAT is paid on domestic energy consumption. Charge your EV at home, and you’ll generally spend less than 10p per kWh, which in plain English means I could “fill up” for less than £8. Now, living in a terraced house with on-street parking I don’t have home charging available to me, and if there wasn’t a work-based option I wouldn’t have gone EV. There are four public chargers now on my street in Ipswich but, at over 50p per kWh, that 280 mile range “top up” now costs £40, which is getting close to internal combustion engine costs per mile.
Seeking a solution
So what is the government doing to address this revenue shortfall? Several things at once, with varying degrees of certainty.
From April 2025, electric vehicles lost their exemption from Vehicle Excise Duty — a rationalisation that makes straightforward sense. The 5p fuel duty cut will be reversed from September 2026, with rates linked to RPI thereafter. Both of those are settled policy. What comes next is considerably less so.
At the Autumn Budget 2025, the Chancellor announced eVED – a proposed pay-per-mile charge for electric and plug-in hybrid cars, pencilled in for April 2028 at 3p per mile for EVs and 1.5p for Plug-in Hybrid Electric Vehicles (PHEV). Legislation has not yet been introduced. The government ran a consultation on how the system would work, which closed in March 2026. The consultation response has not yet been published.
The practical complications
Industry reaction has been pointed. Alphabet, one of the UK’s largest fleet operators, urged the government to “stop and rethink the approach before irreversible damage can be done to EV uptake”, warning that the mileage-verification mechanism – based on self-declaration and annual MOT checks – is operationally unrealistic at scale.
Fleet operators have raised concerns about the need for drivers to book into MOT stations annually for mileage verification, noting both undercapacity in the system and the loss of working time involved. The OBR estimates the scheme could raise £1.4 billion per year by 2029-30; useful, but modest against the £12-13 billion structural hole that the wider decline in fuel duty is projected to create. Whether eVED survives in anything like its proposed form, or arrives on schedule, remains genuinely open.
There is one further complication the government’s consultation documents acknowledge only briefly. Odometer fraud in electric vehicles has already overtaken the rate seen in petrol and diesel cars: 3% of used EVs now show evidence of mileage tampering, compared to 2.8% of diesels and 2.5% of petrol cars. The fraud is currently being driven by Personal Contract Purchase (PCP) and lease agreements, which impose mileage caps and charge penalties for exceeding them. Sophisticated digital blockers (devices that intercept signals between wheel sensors and the dashboard, pausing mileage recording entirely rather than rolling it back) can be purchased for between £200 and £900.
The incentive structure of eVED would simply extend that motivation to every EV owner on the road: not avoiding a lease penalty, but a recurring annual tax bill. Fleet operators have already flagged clocking as a serious risk under eVED, noting that mileage adjustment is cheap, simple and difficult to detect; particularly for cars under three years old, which don’t yet attend MOT stations. A self-declaration system built on odometer readings, in a vehicle category where odometer fraud is already at record levels, is not an obviously robust foundation for a new tax regime.
The philosophical complications
A pay-per-mile charge without variation by time, location or road type is a blunt instrument. It raises revenue without managing demand. A genuinely sophisticated road pricing system – one that charged more for peak use of congested urban roads and less for quiet rural miles – could in principle be fairer and more efficient than the current fuel duty regime. But that requires either tracking technology, which the government has explicitly ruled out on privacy grounds, or the kind of political courage that has been largely absent from motoring taxation policy for fifteen years.
What we are left with is a patchwork: standard VED for EVs, a luxury supplement for expensive ones, a proposed mileage charge from 2028, and a fuel duty regime being slowly restored to something closer to its pre-2022 level. The OBR projects that even with these measures, fuel duty revenues will peak at around £26 billion in 2028-29 and then decline again as EV penetration accelerates. The structural problem has not been solved. It has been deferred.
EVs good in spite of all
I still think I made the right call buying an EV. The running costs are lower (luxury surcharge notwithstanding), the driving is quieter, and as it replaced a 10 year old car I’d driven 130,000 miles in, it’s more reliable. But I notice that each new fiscal event brings a new line item directed at people like me. We were the early adopters who were supposed to model the future. It turns out we were also the canary in the fiscal coalmine. The government is watching how much it can charge us before the numbers stop adding up – for them, and for us. The road ahead is expensive. Somebody has to pay for it.
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