UK Extends EV Subsidies While Planning Mileage Tax to Recover Lost Fuel Revenue

Britain’s government unveiled a £1.3 billion ($1.7 billion) extension of electric vehicle purchase subsidies on Friday, just hours before confirming plans to impose a per-mile tax on EV drivers starting in 2028—a policy contradiction that exposes the fundamental revenue crisis governments face as electrification eliminates fuel duty income.

Chancellor Rachel Reeves will announce the subsidy extension in Wednesday’s Budget, boosting the Electric Car Grant that provides up to £3,750 off eligible vehicles priced under £37,000. The package includes an additional £200 million for charging infrastructure and extends the program through 2029/30.

But the same budget will likely introduce a 3-pence-per-mile charge for EV owners, estimated to cost the average driver £250 ($315) annually starting in 2028.

The Treasury’s rationale is blunt: Britain collected nearly £25 billion in fuel duty during 2024/25, and that revenue disappears as drivers switch to electric vehicles. The government needs a replacement income stream for road maintenance and infrastructure—but implementing it risks destroying the EV adoption they’re simultaneously subsidizing.

The Impossible Math of EV Transition Economics

The UK launched its Electric Car Grant in July 2025 with £650 million in initial funding. According to government figures, the program has helped 35,000 drivers purchase EVs over the past four months by cutting upfront costs.

Now the Treasury is tripling that investment to £1.3 billion while admitting the entire strategy creates a fiscal black hole.

“We’re backing the switch to electric with a £1.5 billion package to cut upfront costs, accelerate chargepoint rollout and unlock jobs and opportunities,” a government source told The Telegraph. The total package reaches £1.5 billion when infrastructure spending is included.

But Treasury officials simultaneously acknowledged to the BBC that “fuel duty covers petrol and diesel, but there’s no equivalent for electric vehicles. We want a fairer system for all drivers.”

That “fairer system” means taxing EVs by distance traveled. Reports indicate the proposed charge would be 3 pence per mile on top of existing road taxes, generating approximately £375 million annually based on current EV adoption rates.

The timing couldn’t be more contradictory. The government is offering thousands of pounds in discounts to convince drivers to buy EVs, then warning those same buyers they’ll face new annual charges within a few years of their purchase.

Opposition Blasts Policy Schizophrenia

Shadow Transport Secretary Richard Holden called the approach “tone-deaf, big-spending nonsense.” He told reporters: “Handing out £1.5 billion in EV subsidies while hard-working taxpayers are squeezed dry is madness. Ordinary families are facing increased taxes and spiralling inflation under Labour, yet the Government’s priority is handing out discounts on new electric cars.”

Even EV industry advocates expressed confusion about the mixed signals. Ginny Buckley, founder of electrifying.com, told media outlets: “The rules about electric vehicles are really confusing. You can’t encourage people to buy EVs while also suggesting pay-per-mile charging.”

The contradiction runs deeper than messaging. Britain banned the sale of new petrol and diesel vehicles starting in 2030, making electrification mandatory rather than optional. Yet the government hasn’t solved the fundamental economics of replacing fuel duty revenue without making EVs prohibitively expensive to operate.

Ford’s UK managing director Lisa Brankin warned just three days ago that the proposed pay-per-mile system would “crater demand” for electric vehicles. Her company has lost approximately $13 billion on EVs since 2023, with the Model E division hemorrhaging $1.4 billion in Q3 2025 alone.

The difference? Brankin was speaking as someone whose business depends on government subsidies continuing indefinitely. The Treasury is speaking as the entity that has to figure out how to fund roads when those subsidies end and fuel taxes disappear.

UK Strategy Diverges From US Collapse

Britain’s subsidy extension comes as the United States provides a real-time case study in what happens when EV incentives vanish.

Congress eliminated the $7,500 federal EV tax credit on September 30, 2025. October sales collapsed 24% in a single month, dropping from 98,289 units in September to just 74,897 units. Within weeks, General Motors announced layoffs and idled $2 billion in battery plants. Ford halted F-150 Lightning production indefinitely.

The UK is betting that gradual implementation—subsidies now, taxes later—will avoid the American cliff-edge disaster. But the underlying problem remains identical: neither country built EV strategies that work without perpetual government intervention.

The Treasury’s proposed 2028 implementation date for mileage charges suggests officials hope EV technology will become cheap enough and compelling enough by then that buyers will absorb the new costs. That’s optimistic given current market dynamics.

When EVXL analyzed the Q3 manufacturing data, we found EV factory investments collapsed 30% year-over-year despite record consumer spending driven by subsidy deadlines. Companies aren’t betting on post-subsidy viability—they’re retreating.

Critical Minerals Strategy Exposes Supply Chain Vulnerability

Separately on Friday, the UK government unveiled a Critical Minerals Strategy acknowledging the country produces just 6% of its mineral needs domestically—leaving Britain overwhelmingly dependent on foreign suppliers, particularly China, for materials essential to EV batteries, wind turbines, and technology manufacturing.

Prime Minister Keir Starmer stated: “Critical minerals are the backbone of modern life and our national security. For too long, Britain has been dependent on a handful of overseas suppliers, leaving our economy and national security exposed to global shocks.”

The strategy targets increasing domestic production to 10% and recycling to 20% by 2035, with a specific goal of producing 50,000 tons of lithium annually in the UK. The government committed £50 million in new funding to support critical minerals projects, focusing on lithium, nickel, tungsten, and rare earth elements.

But the timeline exposes Britain’s vulnerability. The country is subsidizing EV purchases today while admitting it won’t achieve even modest supply chain independence for another decade.

British lithium demand is projected to surge 1,100% by 2035 as EV adoption accelerates. Copper consumption will nearly double. Yet the UK currently imports 94% of these critical materials, with China dominating global processing and refining capacity.

The government’s own press release acknowledged concerns about “being over-reliant on China for the critical minerals it needs for products such as electric vehicles and wind turbines.”

This creates a strategic absurdity: Britain is spending £1.5 billion to accelerate adoption of vehicles built with materials it doesn’t control, supplied by a geopolitical rival, while simultaneously preparing to tax those vehicles to recover lost revenue from the fossil fuel infrastructure electrification is replacing.

EVXL’s Take

Let’s be absolutely clear about what’s happening here: the UK government is executing a controlled demolition of its own fiscal policy, and calling it an “energy transition.”

The £1.3 billion subsidy extension is admission that EVs can’t compete without government support. The simultaneous announcement of future per-mile taxation is admission that the government can’t afford to provide that support indefinitely. And the critical minerals strategy is admission that Britain doesn’t control the supply chains for the technology it’s mandating.

This is policy-making as performance art—contradictory, expensive, and ultimately unsustainable.

Compare this to what we’ve been tracking in the United States. When the $7,500 federal tax credit expired on September 30, EV sales didn’t just decline—they cratered 24% in 30 days. Ford stopped making F-150 Lightnings. GM idled $2 billion in battery capacity and laid off 3,400 workers. The entire subsidy-dependent house of cards collapsed the moment the subsidies disappeared.

Britain is trying a different approach: extend subsidies while warning buyers that taxes are coming. It’s the political equivalent of selling someone a car while simultaneously scheduling their first speeding ticket. The theory is that gradual implementation avoids the American cliff-edge disaster.

But the underlying economics are identical. If your EV business model requires perpetual taxpayer subsidies to function, you don’t have a business model—you have a government dependency that ends the moment fiscal reality intrudes.

The revenue crisis is real. Britain collected £25 billion in fuel duty last year. That’s not discretionary spending the Treasury can absorb elsewhere—it’s fundamental infrastructure funding that pays for roads, bridges, and maintenance. As EVs replace petrol cars, that revenue vanishes. The government must replace it somehow, and a per-mile charge is the obvious mechanism.

Here’s the problem: implementing that charge before EVs achieve genuine cost and performance parity with combustion vehicles will kill adoption. But waiting until after adoption accelerates means accepting years of massive budget shortfalls. The Treasury is trapped between incompatible priorities.

The critical minerals announcement adds another layer of absurdity. Britain is currently 94% dependent on foreign suppliers—overwhelmingly China—for the materials needed to build batteries. China has repeatedly demonstrated willingness to weaponize supply chain dependencies for geopolitical advantage.

Our colleagues at DroneXL have extensively documented how China weaponizes component supply chains against Western competitors and adversaries. When US drone maker Skydio became too successful, Chinese suppliers simply cut them off. When China wanted to help Russia’s invasion of Ukraine, they flooded Moscow with drone components while restricting supplies to Kyiv—328,000 miles of fiber-optic cable to Russia versus just 72 miles to Ukraine.

The same strategic vulnerability applies to EV batteries. Britain is subsidizing rapid adoption of vehicles built with Chinese-controlled materials, then announcing plans to develop domestic supply chains that won’t exist until 2035. That’s a decade of critical dependency on a supply chain that can be shut off whenever Beijing decides British interests conflict with Chinese objectives.

The proposed solution—10% domestic production and 20% recycling by 2035—is laughably inadequate. That still leaves 70% import dependency, and the timeline assumes a decade of uninterrupted access to Chinese materials while Britain builds alternative capacity.

We’ve seen this movie before. Back in July, the UK launched the Electric Car Grant with bureaucratic complexity that left dealers uncertain which vehicles qualified. Manufacturers like Hyundai and Volvo started offering their own £3,750 discounts just to maintain sales momentum while waiting for government clarity.

The pattern is consistent: announce ambitious EV support, layer it with contradictory policies, create market confusion, then wonder why adoption stalls.

Here’s the forecast: Britain will implement some version of the per-mile tax around 2028-2030, phased in gradually to minimize political backlash. EV sales will slow significantly as buyers calculate total cost of ownership including the new charges. The government will respond with additional subsidies to offset the taxes they just imposed, creating an ever-more-complex web of incentives and penalties that benefits no one except the bureaucrats administering the programs.

Meanwhile, China will continue dominating battery supply chains, occasionally restricting access whenever Western policies displease Beijing. Britain’s critical minerals strategy will produce modest domestic capacity that remains far below actual needs. And the £1.5 billion in subsidies announced this week will prove to be just the down payment on decades of government intervention required to make EVs economically viable under this broken policy framework.

The real question isn’t whether this approach will work—it won’t. The question is how long Britain can afford to subsidize an EV transition built on foreign supply chains and unsustainable fiscal policy before the entire structure collapses under its own contradictions.

If you want to see Britain’s future, look at America’s present. When subsidies end and market reality intrudes, subsidy-dependent strategies fail spectacularly.