Why electric-vehicle drivers may face a pay-per-mile tax

Chancellor is reportedly considering new duty in Budget

- SEAN O'GRADY

Reports suggest Rachel Reeves and her officials are giving serious consideration to a “pay per mile” system of tax on battery electric vehicles (BEVs).

The idea has already been described by the AA as a “poll tax on wheels” and does not, at first glance, seem entirely consistent with the push for net zero and electrification of our vehicles. In reality, as with so many other of her difficult choices on tax, Reeves probably has no alternative but to press on...

Why this new tax?

To raise revenue at an unusually difficult time for the public finances. A particular issue with existing fuel duty on petrol and diesel is that it raises less and less as motorists turn to BEVs and hybrid electric vehicles (HEV/PHEVs). Increasing the rate of fuel duty has proved politically difficult and, in any case, couldn’t be done on a scale that would fully compensate for the switch from internal combustion engines. Besides, fuel duty is only tenuously related to ability to pay; options for a more equitable system have been explored since at least the time of the previous Labour government.

Fuel duty still raises some £25bn a year but, if the targets to phase out petrol vehicles, diesels and hybrids are maintained, this figure will rapidly fall through the 2030s and 2040s.

How will it work?