The Treasury has issued a definitive statement regarding forthcoming modifications to the Vehicle Excise Duty system, commonly referred to as road tax, with significant alterations scheduled to be implemented over the next two years. This announcement provides clarity on the Government's fiscal strategy for motor taxation amidst evolving vehicle technologies.
Inflation-Linked Increase Confirmed for 2026
In response to a written parliamentary inquiry from Independent MP James McMurdock, who questioned Chancellor Rachel Reeves about potential reviews to the Vehicle Excise Duty structure, Treasury minister Dan Tomlinson delivered the official Government position. Mr Tomlinson explicitly stated that the Government currently has no plans to review the fundamental structure of Vehicle Excise Duty.
However, he confirmed that established rates for Vehicle Excise Duty across all vehicle types will indeed rise in accordance with inflation from April 2026. This continues the existing policy of annual inflationary adjustments to the tax.
Defining Vehicle Excise Duty
In his statement, Minister Tomlinson provided a clear definition: "Vehicle Excise Duty (VED), sometimes known as 'road tax' or 'car tax', is a tax on vehicles used or kept on public roads. Different rates apply to cars, vans, and motorcycles, and the rate for each vehicle is calculated according to a range of factors, such as its date of first registration, weight, or CO2 emissions."
Major New Electric Vehicle Charge Announced
While ruling out structural reviews, the minister outlined substantial forthcoming changes, particularly targeting electric vehicles. He revealed that at the Autumn Budget 2025, the Government announced the introduction of Electric Vehicle Excise Duty (eVED), a completely new mileage-based charge specifically for electric and plug-in hybrid cars.
This new charge is scheduled to come into effect from April 2028. Under this system, drivers of eligible vehicles will pay for their mileage in addition to their standard Vehicle Excise Duty.
Proposed Mileage Rates and Consultation
The proposed rates under the new Electric Vehicle Excise Duty framework are as follows:
- Electric vehicle drivers will be charged 3 pence per mile
- Plug-in hybrid motorists will pay 1.5 pence per mile
Both of these initial rates will be subject to future inflation-linked increases, mirroring the approach taken with traditional Vehicle Excise Duty. The Government has formally launched a consultation process to gather feedback on these specific proposals.
Rationale and Implementation Details
The consultation document elaborates on the Government's reasoning, stating: "It will be set at half of the equivalent rate of fuel duty for electric cars, and half again for plug-in hybrid cars. eVED will ensure all car drivers contribute, but will still maintain important incentives to switch to an electric vehicle."
Addressing potential privacy concerns, the document clarifies: "eVED will not require 'trackers' in cars, nor will the government ask people to interact with a whole new tax system: car drivers will pay for the miles they drive alongside paying their usual road tax (VED)."
Recent and Upcoming Threshold Changes
This announcement follows recent changes to the Vehicle Excise Duty landscape. From April 2025, electric vehicles became liable for standard vehicle excise duty for the first time, ending their previous exemption.
Furthermore, Chancellor Rachel Reeves confirmed in the Autumn Budget that the Vehicle Excise Duty Expensive Car Supplement threshold will be raised from £40,000 to £50,000 starting from April 2026. This change will reduce the tax burden on owners of moderately priced luxury vehicles.
The Treasury's comprehensive statement therefore outlines a clear trajectory: maintaining the current Vehicle Excise Duty structure with inflationary increases, while introducing a new, separate mileage-based charge for electric vehicles to ensure all road users contribute fairly to Treasury revenues as the vehicle fleet transitions toward electrification.
