Understanding the Pay-per-Mile Tax on Electric Vehicles
The introduction of a pay-per-mile tax on electric vehicles (EVs) has been one of the most significant policy changes in recent motoring discussions. This new tax, part of Rachel Reeves’ Autumn Budget, aims to address the financial gap left by the decline in fuel duty as more drivers transition to electric cars. The tax, known as the Electric Vehicle Excise Duty (eVED), will charge 3p per mile on top of existing car tax from 2028. For the average UK driver who covers 7,400 miles annually, this could result in an additional £222 per year.
How Will the Pay-per-Mile Tax Affect You?
The impact of the eVED depends heavily on how and where you charge your EV. If you have access to home charging, the tax may not significantly affect your costs. However, for those who rely on public charging, the added cost could make EVs more expensive than traditional petrol or diesel vehicles.
Calculating the Impact of eVED on Running Costs
To understand the full impact of eVED, we compared the running costs of an electric vehicle with a petrol car. Our calculations were based on the AA’s latest Recharge Report for October, using the Vauxhall Corsa petrol and Corsa Electric models for comparison. We considered different charging scenarios, including domestic, public slow, fast, rapid, and ultra-rapid charging.
Domestic Charging: The Cheapest Option
According to the Department for Transport, 91% of EV owners in the UK have access to home charging, with three-quarters having a dedicated wallbox installed. Domestic charging is typically the cheapest option, especially when using off-peak energy tariffs. Even with the addition of eVED, EVs charged at home are still cheaper than petrol cars.
However, the tax adds a significant cost. For example, with a domestic charging rate of 26p per kWh, the cost to run an EV would be 8.9p per mile, resulting in an annual bill of £657.12. Of this, 37% would be taxation, amounting to £243.46.
Public Charging: Higher Costs and More Taxation
For those without access to home charging, public charging becomes the primary option. Public charging is generally more expensive due to higher VAT rates. The cost per mile for public slow charging is currently 11.3p, which increases to 14.3p with eVED included. Similarly, fast and rapid charging points add even more to the cost, making EVs potentially more expensive than petrol cars.
The Tax Benefit of Running an EV
Despite the introduction of eVED, owning an electric vehicle still offers tax benefits. Salary sacrifice schemes allow employees to lease EVs through their employers, reducing taxable income and leading to savings on income tax and National Insurance contributions. Additionally, the Benefit in Kind (BiK) tax rate for EVs remains significantly lower than for petrol and diesel cars.
Expert Opinions on the Pay-per-Mile Tax
Ginny Buckley, CEO of Electrifying.com, highlighted that while eVED increases EV running costs, it still remains more cost-effective for most drivers. However, she emphasized the need for fair treatment of all drivers, particularly those relying on public charging. She also called for support for home-charging installations and better promotion of dedicated EV energy tariffs.
Edmund King, president of the AA, noted that even with the 3p per mile charge, drivers who can charge at home will still benefit financially.
Bad News for Petrol Drivers Too
While the focus has been on EVs, petrol and diesel drivers are also facing rising fuel prices. Despite a drop in wholesale costs, pump prices have continued to rise, with petrol reaching an average of 137.5p per litre and diesel at 146.9p per litre. These prices are the highest since mid-March and early March, respectively.
This trend highlights the ongoing challenges for all drivers, regardless of the type of vehicle they own. As the automotive landscape continues to evolve, understanding the financial implications of these changes is crucial for making informed decisions.