UK Chancellor Rachel Reeves is reportedly considering a 3p-per-mile tax on electric vehicle drivers in next week’s Autumn Budget, according to Die Zeit. The proposed pay-per-mile charge would help offset a massive decline in fuel duty revenue as British drivers increasingly switch from petrol and diesel vehicles to EVs.

The move comes as the UK government faces a projected £35 billion ($44 billion) revenue shortfall by 2030, driven by the rapid transition to electric vehicles that don’t contribute to fuel duty collections. If implemented following a consultation period, the tax would take effect in 2028 and mark a significant policy shift for a government that just months ago expanded EV purchase incentives.

Estimated Mileage Tax Would Replace Lost Fuel Revenue

Proposals drawn up by the Treasury would charge electric vehicle drivers 3p per mile (approximately $0.039 USD per mile) based on estimated annual travel distance, The Times reported November 5. For the average UK driver covering 7,500 miles annually, this would amount to roughly £225 ($285) per year.

The tax structure is designed to avoid a monitoring system that tracks actual miles driven. Instead, officials appear to favor basing the charge on estimated travel distance for the year ahead, with drivers carrying over payments if they drive less than anticipated or paying a top-up if they exceed projections.

Currently, most UK drivers pay a flat vehicle excise duty of about £195 ($247) annually. EV users became subject to this standard rate in April 2025 after years of exemption, but they remain exempt from fuel duty—the tax charged on petrol and diesel that generates billions in government revenue.

Fuel Duty Revenue Dropping From 7% To 2% Of Tax Collections

The UK’s fuel duty crisis has reached critical levels. According to HMRC monthly tax receipts, fuel duty collections for April through September 2025 totaled £12.2 billion ($15.5 billion), down £26 million from the same period last year.

More dramatically, fuel duty revenues have plummeted from nearly 7% of total UK tax revenues in 2019-20 to a projected 2% in 2025-26, according to Office for Budget Responsibility forecasts cited by RSM UK. The decline reflects accelerating adoption of electric and hybrid vehicles that don’t use petrol or diesel.

“Fuel duty receipts continued their downward trajectory in September, reflecting the ongoing transition from petrol and diesel vehicles to electric vehicles,” said Sheena McGuinness, RSM UK co-head of energy and natural resources. “The only sustainable solution is to develop an alternative fuel duty for the increasing number of EVs in the UK.”

Experts estimate that fuel duty revenues will fall by £9 billion ($11.4 billion) annually by the end of parliament as new petrol and diesel car sales have fallen by two-thirds over the past decade, according to Die Zeit.

Resolution Foundation Blueprint Suggests Weight-Based Charges

The pay-per-mile concept gained traction following a September 2025 report from the Resolution Foundation think tank titled “Call of Duties”. The analysis recommended restructuring vehicle taxation to account for EV adoption and suggested mileage-based fees tied to vehicle weight.

The Resolution Foundation proposed charging electric vehicles 6p per mile without VAT for average-weight vehicles around 1,800kg (3,968 lbs). Light EVs weighing 1,000kg (2,205 lbs) could pay around 3p per mile, while heavier EVs at 2,800kg (6,173 lbs) could face 9p per mile charges.

A per-mile tax on electric vehicles based on weight was previously suggested by the Resolution Foundation in 2023, when the organization was led by Torsten Bell, according to Die Zeit. Bell stepped down last year to become a Labour MP and is now leading Reeves’s preparations for the budget.

The think tank argued that weight correlates with road damage, noise, and other externalities appropriate for public policy consideration.

“Given that EVs can be powered for as little as 2p per mile, while a typical weight petrol car might cost 16p per mile, such a new VED system would be a material change in the cost of EV driving, but also see it remain cheaper than the high carbon alternative,” the Resolution Foundation stated.

Government Caught Between Revenue Needs And Climate Goals

The Treasury faces mounting pressure to address the fiscal gap while maintaining support for the EV transition. A government spokesperson emphasized the balancing act, stating:

“Fuel duty covers petrol and diesel, but there’s no equivalent for electric vehicles. We want a fairer system for all drivers whilst backing the transition to electric vehicles, which is why we have invested £4 billion ($5.1 billion) in support, including grants to cut upfront costs by up to £3,750 per eligible vehicle.”

However, other ministers have reportedly raised concerns that the move would reduce incentives for switching to EVs with lower emissions. Conservative shadow chancellor Sir Mel Stride criticized the proposal, telling The Telegraph:

“It would be wrong for Rachel Reeves to target commuters and car owners in this way just to help fill a black hole she has created in the public finances.”

The EV industry expressed alarm at the timing. Tanya Sinclair, CEO of Electric Vehicles UK, said: “Rumours about pay-per-mile only unsettle drivers and risk slowing the very market we need to grow.” She urged the government to avoid fueling speculation before the budget announcement.

Fuel duty has been frozen for 14 years, and Treasury insiders indicated that making a “serious move” to stabilize revenue from drivers would be viewed favorably by bond traders as welcome fiscal discipline that could help reduce long-term borrowing costs, according to Die Zeit.

Budget Announcement Set For November 26

Chancellor Reeves will deliver the Autumn Budget statement to the House of Commons on November 26, 2025. The exact per-mile charge rate remains under discussion before the budget, according to Die Zeit.

If announced, the pay-per-mile scheme would begin in 2028 following a consultation period. This timeline would give the government space to design implementation details while signaling policy direction to drivers and automakers.

The proposal comes as the UK pushes manufacturers to meet Zero-Emission Vehicle mandate targets, requiring increasing percentages of new car sales to be electric vehicles as the country works toward banning new petrol and diesel car sales by 2035.

EVXL’s Take

This proposal represents a troubling global pattern: governments worldwide are pivoting from EV carrots to sticks just as adoption begins accelerating. The UK’s pay-per-mile tax mirrors recent U.S. policy reversals, where federal EV tax credits expired September 30, 2025, triggering exactly the market disruption critics predicted.

The parallels are striking. After years of incentivizing EV purchases through the $7,500 federal tax credit, the U.S. eliminated the program through Trump’s “Big Beautiful Bill” signed July 4, 2025. The result? U.S. EV sales collapsed 24% in October as the full impact of losing the credit hit dealerships.

House Republicans subsequently proposed a $250 annual EV fee to fund highway repairs, arguing EV drivers should contribute to road infrastructure. EVXL argued then that governments should “fund roads without braking the EV revolution”—advice that applies equally to the UK’s situation.

The UK’s approach is arguably more sophisticated than a flat annual fee, using mileage-based charges that more accurately reflect road usage. But the underlying contradiction remains: governments spent years subsidizing EV adoption to meet climate goals, only to reverse course and add new taxes once adoption succeeds. This policy whiplash creates exactly the market uncertainty that slows the transition both governments claim to support.

The fiscal reality is unavoidable—fuel duty revenue is collapsing as EVs gain market share. But timing matters. The UK just launched a £650 million EV grant program offering up to £3,750 off qualifying vehicles. Simultaneously proposing a new annual tax of £225 sends mixed signals that could freeze buyers in decision paralysis.

There’s a fairer solution available: phase in road pricing gradually while maintaining purchase incentives during the critical adoption period. New Zealand and Iceland have implemented distance-based charging systems that apply to all vehicles, not just EVs. This avoids singling out early adopters who took financial risks on new technology to support climate goals.

The UK budget announcement on November 26 will reveal whether Reeves proceeds with the 3p-per-mile charge or opts for a more gradual approach. Either way, the message to global EV markets is clear: the era of unconditional government support is ending faster than the charging infrastructure can expand to replace it.

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Photo credit: Jaguar