3p: The cost per mile for an electric vehicle is minimal, yet it represents a significant shift in the UK’s approach.

Ministers have historically opposed any type of road pricing due to its potential political fallout. This stance might change next week. Rachel Reeves, likely accustomed to facing criticism over fundraising schemes, is expected to propose charges specifically based on the mileage of EVs.

The Treasury has nearly confirmed that some financial measures will be revealed in next week’s budget, though no specifics have been disclosed. As reported first by the Telegraph, starting in 2028, EV users will be able to pay an additional fee atop their yearly road tax or vehicle excise duty (VED) according to the miles driven that year. This could involve a self-reported distance estimate or an odometer check during an MOT.

The uptake of battery electric vehicles, which are cheaper to operate compared to petrol cars, is increasing. By 2024, these vehicles are projected to be driven an average of about 8,900 miles, based on statistics from the Department for Transport (DfT). At a rate of 3p per mile, the current 1.4 million EVs on the roads could generate £267 per vehicle, amounting to around £375 million annually.

Transport Secretary Heidi Alexander had difficulty dismissing a national road pricing scheme during Thursday’s Commons questioning, but a later “clarification” indicated that pay-per-mile for EVs remains a possibility.

Looking ahead, a worrying deficit in vehicle tax revenue is anticipated as the transition to EVs diminishes fuel tax revenue. While petrol and diesel vehicles contribute taxes based on fuel consumption, the shift to electric will alter this dynamic.

Latest forecasts from the Office for Budget Responsibility indicate that a fuel tax of 52.95p per liter (roughly 5p per mile for the average car) will yield £24.4 billion this year, but billions of this income will decline starting in 2030 when sales of new petrol and diesel cars are phased out.

The key challenge lies in identifying fair alternatives to an unsustainable tax structure, particularly as there is enduring opposition from the right to all types of road pricing, which has become entangled in a culture war over London’s Ultra Low Emission Zones (ULEZ) and low-traffic areas, arguing for increased surveillance and reduced freedoms.

Some economists are in favor of time- and congestion-based road pricing, which may serve as a fairer method for managing road usage, although it also raises concerns about additional tracking.

Steve Gooding, director of the RAC Foundation, asserts that any plan should prioritize simplicity. However, regarding privacy, he notes, “The volume of data generated by modern vehicles is substantial. If the DfT or DVLA began monitoring Fahrzeugen, people might feel closely scrutinized. Yet Elon Musk has a different view: [Musk] – They don’t seem to mind.”

A broader issue is that pay-per-mile may deter drivers from switching to electric vehicles, which is vital for reducing carbon emissions. Manufacturers, businesses, and motoring organizations like Ford, Autotrader, and the AA have expressed concerns about the timing of introducing new charges amid this transition. Under the UK’s ZEV obligation, car manufacturers are required to ensure that one in three cars sold next year is a zero-emission vehicle, escalating to 80% by 2030 (the remaining 20% can be hybrids).

Current grants for new electric cars can be as high as £3,750, making running costs more reasonable for some consumers; however, several discounts and tax exemptions have ceased. Transport for London recently confirmed that EVs will have to pay the capital’s congestion charge starting next year, with zero-emission vehicles also subject to VED from April onward.

New Zealand is raising alarms, according to a report from the Social Market Foundation (SMF). Electric vehicles became liable for road tolls last year, a system previously reserved for diesel cars, where drivers purchased permits in increments of 1,000 km (621 miles). This change, alongside the cessation of buyer incentives and tax exceptions, resulted in a dramatic drop in new EV sales, with market share plummeting from a peak of 19% to just 4%.

The SMF noted that Iceland also implemented a pay-per-mile system for EVs last year, but maintained incentives and pricing differentials, resulting in a much less pronounced decline in market share.

Advocates of this emerging technology proceed with caution. The Electric Vehicle Association England, representing motorists, expressed to the Prime Minister that consumer confidence in EVs remains tepid.

For many individuals, particularly in lower-income neighborhoods or those reliant on public charging without driveways, operational costs no longer present the same appeal. Ginny Buckley, CEO of Electrifying.com, an EV review platform, stated: “For numerous people, the expense of running an EV could exceed that of a gasoline vehicle if they lack access to affordable home charging and depend on public networks.”

Graham Parkhurst, a professor of sustainable mobility at the University of the West of England, highlighted that the stark disparity between home chargers and public charging stations (which are subject to a 20% VAT surcharge) represents a “political time bomb,” further dividing socio-economic classes.

Even longstanding advocates for pay-per-mile, like Parkhurst, caution that such systems require careful consideration. “Charging based on mileage makes sense, similar to how fuel taxes function. However, we need time to devise how to integrate this into a broader transport taxation framework. If you need a vehicle, an electric car is undoubtedly the smarter choice,” he asserted.

The think tank Resolution Foundation suggests that any mileage and weight-based charges should apply only to future EV sales.

Tanya Sinclair, chief executive of UK Electric Vehicle, agrees on the need for fundamental reform of car taxation, but emphasizes that the government must convey a clear intent to encourage the shift to electric vehicles. “Any actions that create confusion, like providing subsidies while also launching pay-per-mile charges, blur the message for consumers,” she notes.

A government spokesperson stated the administration would “consider further support” for EVs but emphasized: “While fuel tax applies to petrol and diesel, an equivalent for electric vehicles is lacking. We are aiming for a fairer system for all drivers, while facilitating the transition to electric vehicles.”

“The best time to integrate road pricing would have been in the past, but the political landscape is complicated,” noted Gooding. The cross-party Transport Select Committee advocated for urgent road pricing implementation in 2022 to replace all vehicle taxation for every vehicle type. Yet, no minister has shown enthusiasm for this. Mayor Sadiq Khan of London was compelled to reject the possibility of pricing last year due to overwhelming anti-ULEZ sentiment, despite earlier indicating it was a viable option.

According to Mr. Gooding, introducing new policies is “most effectively undertaken with the minimum number of vehicles involved, and limiting it to EVs could be more manageable than developing complex charges for the 34 million vehicles already in circulation.”

For some, including Buckley and the Transport Improvement Campaign, a controversial yet clear solution remains: terminate the 15-year freeze on fuel taxes and the temporary 5p reduction currently in effect since 2022.

The SMF reported that had the levy remained consistent in real terms, nearly £150 billion would have been accumulated in public funds. Regardless of how the pay-per-mile model evolves, Reeves stated, “We must ensure that taxes on EVs for businesses remain lower than those on petrol.” “The simplest method of preserving this variance is by increasing fuel taxes.”