The pay-per-mile tax on electric cars due to come into play in April will hit demand for EVs, according to the Office for Public Responsibility (OBR).
Chancellor Rachel announced the charges will equal £0.03 per mile for battery electric cars and £0.015 per mile for plug-in hybrid cars, with the rate per mile increasing annually with CPI.
The average driver of a battery electric car in 2028-29 driving 8,500 miles is expected to be charged £255 in this year.
“This new charge is likely to reduce demand for electric cars as it increases their lifetime cost,” it said.
The OBR produces detailed five-year forecasts for the economy and public finances twice a year.
The forecasts accompany the Budget Statement. They incorporate the impact of any tax and spending measures announced in those statements by the Chancellor.
“Overall, as a result of this measure, we estimate there will be around 440,000 fewer electric car sales across the forecast period relative to the pre-measures forecast, with 320,000 of this offset by the expected increase in sales due to other Budget measures.”
The Government also announced an increase to the expensive car supplement (ECS) threshold for battery electric cars, from £40,000 to £50,000 in April 2026.
The ECS is an additional VED charge which is spread over five years, commencing a year after the vehicle is first registered, totalling £2,370 for a car purchased in 2025-26.
The Government expanded the electric car grant between 2025-26 and 2029-30.
