Millions of motorists who drive plug-in hybrid vehicles are set to be taxed twice under new government plans for a pay-per-mile levy on electric cars. The proposal, part of Chancellor Rachel Reeves's recent budget, has drawn sharp criticism from industry leaders who warn it will severely damage the transition to cleaner transport.
The Double Taxation Dilemma
The new electric Vehicle Excise Duty (eVED), slated for introduction in 2028, will apply a charge for every mile driven. Under the scheme, drivers of battery-only electric cars will pay 3p per mile. However, owners of plug-in hybrids—which combine a conventional engine with a small battery—face a unique penalty.
They will be charged 1.5p for every mile driven, regardless of whether the car is using its electric battery or its petrol engine. This creates a situation of double taxation, as these drivers will still have to pay the existing fuel duty on top of the new per-mile levy for journeys powered by fossil fuel.
Most plug-in hybrids have an electric range of 50 miles or less, with some older models managing only around 25 miles on battery power alone. This means a significant portion of their mileage will incur both charges.
Industry Backlash and Market Fears
The automotive industry has reacted with alarm. Mike Hawes, chief executive of The Society of Motor Manufacturers and Traders (SMMT), labelled any form of double tax as 'punitive'. He argued it would 'dissuade' buyers and deter investment in a technology that is a 'crucial step' towards fully electric vehicles.
Sales of plug-in hybrids have been booming, accounting for one in ten of all new cars sold. Figures from the SMMT show 190,240 have been sold so far this year—a 37 per cent increase on 2023. Hawes warned that the announcement risks stalling this growth, making drivers 'understandably anxious'.
These concerns are backed by international evidence. Analysis by research group New AutoMotive found similar taxes in Iceland and New Zealand led to a 'severe and immediate collapse' in electric vehicle market share. In Iceland, a 5p-a-mile tax and subsidy withdrawal saw EV share plummet from 40% in 2023 to 13% in 2024.
Broader Impacts and Political Timing
The Office for Budget Responsibility estimates the UK's pay-per-mile scheme will result in 120,000 fewer cars sold by 2030. Edmund King, president of the AA, questioned the timing of the announcement: 'They are not talking about introducing it until 2028 so why are we talking about it now?'
He fears sales will diminish as consumers opt for traditional petrol cars before the 2030 ban to avoid the double tax, despite hybrids being permitted for sale until 2035. Public sentiment appears sceptical; an Auto Express poll found 32 per cent believe the new tax is 'poorly timed' and will slow the EV transition, while 23 per cent deem it 'unfair'.
This move follows Labour's earlier tightening of EV tax rules. From April this year, most electric vehicle drivers began paying the standard vehicle excise duty rate—£10 in the first year and £195 annually thereafter—matching the tax on petrol and diesel cars. The majority of plug-in hybrids now pay £110 in year one before moving to the standard rate.
