By Oscar Woods 
Chancellor Rachel Reeves introduced sweeping changes to car taxes in her Autumn Budget, leaving millions of motorists wondering what this means for their wallets. The updates target electric vehicles, fuel duty, and luxury car thresholds, marking a significant shift in how Britain taxes its drivers.
Table of Contents
Pay Per Mile Charges Land in 2028
Starting in April 2028, electric and plug-in hybrid vehicle owners will face a new charge based on how far they drive. Electric cars will be taxed at 3 pence per mile, while plug-in hybrids pay 1.5 pence per mile. This comes on top of the standard vehicle excise duty that already applies to these vehicles.
For context, drivers covering 8,000 miles annually will pay £240 in electric vehicle charges, while plug-in hybrid owners face £120 for the same distance. The government positions this as roughly half the fuel duty paid by petrol and diesel drivers.
Why the change?
Reeves explained that all vehicles contribute to road wear and congestion, regardless of fuel type. With fuel duty revenues expected to drop from current levels to around £12 billion in the 2030s and near zero by 2050, the Treasury needed a replacement income stream. The Office for Budget Responsibility estimates this could reduce electric vehicle sales by 120,000 units as the policy dampens demand.
Luxury Car Tax Threshold Rises for EVs Only
The Expensive Car Supplement threshold will increase from £40,000 to £50,000, but only for zero-emission vehicles starting April 2026. Petrol, diesel, and hybrid cars remain stuck at the £40,000 mark.
This surcharge adds £425 annually from years two through six of ownership. The new threshold should save over one million EV drivers approximately £440 per year. Critics call it a two-tier system that unfairly treats conventional vehicles, particularly when inflation has pushed many family cars above the original £40,000 benchmark.
Data from the DVLA shows 426,758 drivers paid the supplement in 2024-25, up 42% from 299,553 just two years earlier. Within five months of EVs becoming liable in April, around 119,000 electric vehicle buyers already faced the charge.
Fuel Duty Gets Temporary Reprieve
Fuel duty will stay frozen until September 2026, keeping the 5 pence per liter cut in place for now. However, drivers should prepare for staggered increases starting September 1, 2026, when duty rises by 1 pence, followed by 2 pence increases in December 2026 and March 2027.
Simon Williams from the RAC noted this saves drivers more than £3 per tank but called the relief short-lived given the planned increases. The freeze extension costs the Treasury £2.4 billion in 2026-27 and roughly £900 million annually thereafter.
A new Fuel Finder tool launching in early 2026 will display real-time prices at forecourts across the country. The government estimates this could save households around £40 yearly by helping drivers locate cheaper options.
Industry Voices Concerns
The response from motoring groups and industry leaders has been mixed at best. Mike Hawes from the Society of Motor Manufacturers and Traders warned the new electric vehicle duty arrives at exactly the wrong time, potentially undermining demand just as manufacturers bring over 150 EV models to market.
Paul Hollick from the Association of Fleet Professionals called the timing highly questionable, noting that while members broadly accepted the need to recover lost revenue, adding costs before electric cars become mainstream represents a risky strategy.
Nearly half of UK drivers surveyed by Autotrader said they were less likely to buy an electric vehicle after the Budget announcement. Ian Plummer from the company described it as a pivotal moment that highlights the lingering wealth divide in EV adoption.
What Gets Funded
The government plans to reinvest 80% of revenue from the new charges during the first three years. This includes £1.3 billion for the Electric Car Grant extension through 2029-30 and £200 million toward expanding charging infrastructure nationwide.
Road maintenance funding will also get a boost, with the government committing over £2 billion annually by 2029-30. Reeves stated the pay-per-mile system would help double road maintenance funding in England.
Lesser Known Changes
Beyond the headline measures, the Budget included several smaller updates:
- Classic cars over 40 years old keep their vehicle excise duty exemption, though this could face review in coming years
- Search and rescue vehicles now receive full VED exemption, saving volunteer organizations approximately £2,000 annually
- Standard VED rates for cars, vans, and motorcycles will increase in line with the Retail Price Index from April 1, 2026
- Luxury vehicles removed from the Motability scheme to return it to its original purpose of supporting disabled drivers
The Road Ahead
The Transport Committee launched an inquiry in December 2025 to examine these changes, accepting evidence submissions through January 30. Committee Chair Ruth Cadbury raised questions about whether Britain remains on track for its transition away from petrol and diesel vehicles.
Exchequer Secretary Dan Tomlinson defended the policies as necessary for fairness and sustainability. He stressed that support measures including grants and charging infrastructure will be in place before the pay-per-mile system begins.
For drivers considering rachel reeves car tax changes, the message is clear: the landscape is shifting. Electric vehicles still offer tax advantages compared to conventional cars, but the gap is narrowing faster than many expected. Anyone planning a vehicle purchase in the next few years should factor these changes into their calculations, particularly if looking at models near the £40,000 or £50,000 price points.