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Two Weeks on from the Budget: Unfair EV Tax Design Undermines UK’s Zero-Emission Goals
In the 2025 Budget, the Chancellor announced a new system of pay-per-mile tax on electric cars, described as e-VED. Under the new system, electric vehicles (BEVs) will be subject to a new charge of 3p per mile, while plug-in hybrids (PHEVs) will be charged just 1.5p per mile, and cars running fully on fossil fuels like petrol and diesel cars will be exempt from the scheme.
While moving towards a pay-per-mile system is the right long-term direction, applying the highest rate to BEVs, and giving a half rate to PHEVs, sends the wrong message to consumers and industry.
Under the current design, a fully electric Kia EV3 would face £1,100 more in upfront annual taxes over a 10-year period than a PHEV Ford Kuga -despite PHEVs emitting five times more CO₂ in real-world driving than official figures suggest. The Kuga emits an average of 106gCO₂/km, just 38g less than a petrol Nissan Qashqai, while the Kia produces zero emissions at the tailpipe.
T&E UK warns that this imbalance compounded by outdated Vehicle Excise Duty (VED) rules that understate PHEV emissions sends the wrong signal to consumers and risks slowing the shift to fully electric cars.
Despite these concerns, the Budget did include several positive steps on vehicle taxation and EV infrastructure, including:
- Reversing the 5p fuel duty cut and unfreezing rates.
- Raising the VED “expensive car supplement” threshold for BEVs from £40,000 to £50,000.
- Granting 100% business rates relief for EV-only forecourts and eligible charging points.
- Cutting household electricity prices by 4p/kWh by removing 75% of the Renewables Obligation cost.
- Providing an additional £1.3 billion for the Electric Vehicle Grant.
However, more action is needed to align the tax system with the UK’s 2035 zero-emission vehicle target. T&E UK urges the government to:
1. Increase the pay per mile rate for plug-in hybrids and ensure it reflects their real world emissions impact of vehicles.
2. Tax PHEVs according to their real world emissions in VED, closing the current loophole. 3. Increase VED on petrol and diesel cars, especially those with high CO2 emissions, to maintain the tax differential between ICE and electric cars.
4. Complete the consultation on the cost of public charging by mid-2026 to ensure policies that reduce these cost barriers can be implemented as soon as possible. 5. Include renewable energy used to charge EVs in the Renewable Transport Fuel Obligation (RTFO), to cut the price of charging.
6. Lower VAT from 20% to 5% on public charging, with a requirement for charge point operators to pass these savings through to consumers in full. This would bring taxes on public charging in line with private charging.
7. Introduce a social leasing scheme to make EVs more accessible to lower income
households.
8. Introduce a Large Vehicle Levy to raise £2 billion a year, ensuring tax fairness on UK roads.
For the full story download our Budget Briefing.
