The Chancellor’s second Budget promises more charging infrastructure, an extended EV grant and delayed changes to benefit-in-kind rules. Yet new charges, most notably the pay-per-mile levy, risk slowing the shift to electric vehicles. Industry voices warn that uncertainty around costs, taxation and long-term policy could undermine the UK’s transition at a critical moment.

---

By now we all know the highlights of Rachel Reeves’s second budget as Chancellor of the Exchequer.  Excise duty is being introduced for electric vehicles. At the same time, the threshold is increasing for electric vehicles to be subject to the expensive car supplement. Reeves’s also held off making changes to the employee car ownership. Funding for the electric car grant has been confirmed until 2030, and a further £200 million has been earmarked for accelerating the roll out of EV charging infrastructure across the UK.

Those are the headlines.

But what do they really mean for motorists, and those in the automotive and motor finance industries?

“The Budget sends mixed signals to both motorists and fleet managers,” Patrick Gallagher. Chief Operating Officer of fleet operator, Addison Lee. “On the one hand, funding for new charging infrastructure and energy resilience are welcome steps in the EV transition. Even with this investment, meeting demand will be a major challenge.”

London alone is expected to need around 60,000 charge points by 2030. Today London is 25,000 charging points towards that target, and Gallagher argues rapid chargers remain unevenly distributed across the city.

“At the same time, the introduction of new charges – particularly the pay-per-mile levy – creates additional cost pressures at a moment when operators are being encouraged to decarbonise,” Gallagher says. “What’s missing is a stable, long-term policy environment that rewards early adoption.”

“This budget has been significant for motorists and sees the introduction of pay per mile charge, one of the biggest shake ups in the history of vehicle taxation,” adds Tim Dexter, UK Vehicles Policy Manager for Transport & Environment (T&E). “Doing so is sensible, however, it is essential that there are still clear incentives for drivers to purchase EVs, and support the automotive industries targets under the ZEV mandate of 80% sales by 2030. Finally unfreezing fuel duty is welcome given that oil prices now back down to before the Ukraine war. It is a strong signal for drivers to go electric.”

Gallagher argues that the Budget introduces uncertainty about future running costs – whilst also contributing to weaker EV residual values. This makes it harder for fleet managers to plan investments and for motorists to feel confident switching to electric.

“That uncertainty is likely to deter people from making the transition, ultimately slowing progress towards the UK’s climate and air-quality goals,” Gallagher says.

Uncertainty is also theme in the response of Will Jackson, Head of Commercial at Carwow.

“The Budget raised just as many questions as it answered,” he says. “Important provisions for the improvement of public charging services and widespread adoption of electric cars (EVs) were welcome; confirmation of the pay-per-mile scheme to replace a shortfall in VED and fuel duty, less so.”

At least one welcome piece of news from the budget was that it put off changing benefit-in-kind and extended the 100% first-year allowance for zero emission vehicles and charge points.

“That will help bring some much-needed certainty, even if only for a few years, to the fleet sector that still drives EV adoption forward,” Jackson says. “It’s clear the government is trying to level the playing field between drivers of ICE cars and EVs, and only time will tell if these policies are the right way to achieve it.”

Ultimately, from an automotive perspective, Labour’s new budget will be judged on the effect it has on long-term EV adoption, but already it has seen some sceptical responses.

“Today’s Budget reaffirms the Treasury’s determination to repair public finances, but it offers little meaningful support for the electrification of transport,” says David Bushnell, Director of Consultancy and Strategy at Fleet Operations. “What’s more, in several key areas it risks actively undermining it, with zero-emission vehicles becoming more expensive to acquire, operate and remarket.”

Dexter argues that this budget could not just slow, but actively reduce EV adoption. He tells us, “Initial OBR figures suggest that this budget could result in around 120,000 fewer EV sales by the end of the decade. With the UK needing to reach 80% EV sales by 2030, this shortfall is significant. It underlines the importance of strengthening measures such as the newly extended EV car grant, alongside wider supportive policies, to ensure the ambition of the ZEV mandate is maintained and consumer adoption remains on track.”

But even critics of the budget will point out that the new budget has some advantages.

 “The extension of the Electric Car Grant (ECG) is great news for people who might be concerned about the cost of committing to an EV. It helps bring down up-front costs, encourages greater EV adoption, and should soften the blow of the new EV mileage tax,” says Jackson. “It’s a fact that EVs are more expensive than petrol cars, despite efforts from vehicle manufacturers to gain price parity. So a disproportionate number of relatively normal family vehicles are liable for the so-called ‘Expensive Car Supplement’. At present, EVs registered on or after 1 April 2025 that cost more than £40,000 are subject to this tax, which costs affected motorists £425 per year. The government estimates that when this price threshold rises to £50,000 in April 2026, it will help one million motorists switch to an EV more affordably.”

Yet the constantly returning theme is “not far enough”.

“Movement on the expensive car supplement threshold, from £40,000 to £50,000, offers some limited relief, but at the same time, it will unnecessarily penalise used buyers, with some nearly identical used vehicles being treated differently, purely based on the registration date,” says Bushnell.

Gallagher also says the budget could, and should go further.

“There are some positive elements in the Budget, including funding to expand EV charging infrastructure and investment in grid resilience. These steps will be fundamental in addressing some of the practical barriers to adoption and are necessary for building a reliable national EV ecosystem,” says Gallagher. “But these measures only go so far. Without practical incentives that reduce the cost of operating an EV – and with new charges being introduced at the same time – the government risks undermining the very transition it is trying to promote.”

Bushnell argues that, among other issues, reducing the writing-down allowance for sub-50g/km vehicles is likely to increase leasing costs and penalise fleets that purchase greener vehicles outright.

“Adding new costs onto EVs at a time when the government should be encouraging adoption is counter-productive,” he says.

This is at a time when Bushnell states that businesses are already struggling with an array of other costs. He tells us, “The reversal of the fuel duty freeze will further raise costs for businesses already absorbing higher wage, insurance and operating expenses. Combined with changes to vehicle taxation, these measures amount to a broad-based increase in the cost of mobility, with no support for fleets trying to decarbonise.”

For all of the pros and cons of the new budget, perhaps the most effective boost to the transition is one that was already in place.

“That said, leasing through salary sacrifice schemes remains the most cost-effective way to switch to EV, especially since plans to amend the benefit-in-kind rules on Employee Car Ownership Schemes (ECOS) have been delayed until 2030,” Jackson says.

Pennies-per-mile

Perhaps the topic that has stoked the most controversy is the introduction of an excise charge for electric vehicles.

“The introduction of a 3p-per-mile charge for battery-electric cars and 1.5p-per-mile for Plug in Hybrids, rising annually with CPI, is particularly concerning,” says Bushnell. “This increases the lifetime cost of owning an EV and by the government’s own admission, and will lead to around 440,000 fewer electric car sales over the forecast period, reducing demand and destabilising used values.”

Gallagher agrees, arguing that introducing a pay-per-mile charge in EVs will directly undermine the government’s own goals around EV adoption.

“It removes one of the last remaining financial advantages of going electric by increasing day-to-day running costs,” he says. “For commercial operators like ours, the impact is significant. A pay-per-mile levy could cost an EV driver on our fleet around £840 a year, and a plug-in hybrid driver around £420. This comes on top of the removal of the Congestion Charge exemption for EVs in London, which adds up to £4,700 a year for the average driver.”

Gallagher believes that combining new national charges with local policy reversals means that the economics of operating EVs no longer stack up.

“The result is a perverse incentive: instead of accelerating EV adoption, pay-per-mile risks slowing it down or even reversing the progress already made,” he says.

However, a key part of the argument is not just financial – it’s emotional. First, it comes down to how much customers can trust the way they will be charged.

“Before pay-per-mile is implemented, motorists will want transparency. They’ll want to know what they’re going to pay and how their mileage will be tracked. Drivers have very valid concerns about privacy and fairness,” says Jackson.

That sense of fairness is also a key factor. Jackson tells us that ahead of the budget, Carwow did some research which showed that nearly half of UK drivers (49%) believed that a pay-per-mile road tax system was a fairer way to charge motorists. That same research found that fairness is at the forefront of motorists’ minds, with more than half (51%) believing all drivers should pay the same rate per mile regardless of fuel type.

“That said, 28% believed EV drivers should pay less to reflect their lower emissions,” Jackson says. “These findings suggest growing openness to reforming how Britain taxes driving, as policymakers seek to replace falling fuel duty revenues in the shift towards EVs.”

Any solution the government puts into place needs to balance that need for fairness with the economic necessity of revenue.

“The pay-per-mile taxation needs to balance fairness, simplicity and cost to avoid penalising those who rely most on their cars,” says Jackson. “That said, the 3p per-mile rate for EVs will still be significantly less than what drivers of internal combustion engine (ICE) cars are paying in fuel duty.”

There are still those who argue in favour of the pay-per-mile tax, precisely because of that need for fairness.

“A pay-per-mile tax for electric vehicles is a sensible long term choice,” says Dexter. “It is a decision that reflects the need for a fair and sustainable approach to road use as traditional fuel duty revenues decline as electrical vehicles become more prominent.”

Jackson, however, will only accept that it is a “necessary evil”.

“EVs couldn’t remain virtually tax-free forever, and it’s reasonable that their drivers contribute to road use like internal combustion engine drivers,” Jackson tells us. “Pay-per-mile addresses the fall in fuel duty caused by the ongoing electrification of the UK vehicle market, and charging 3p per-mile based on usage is arguably fairer than a flat rate, but effective fraud-free implementation will be a real challenge.”

But Gallagher states that another solution should be sought.

“It’s not for us to tell the Chancellor how to balance the nation’s finances, but as it stands, the government’s approach is a case of giving with one hand and taking away with the other,” he tells us. “Even if pay-per-mile raises revenue for the Exchequer, the long-term cost – to drivers, to businesses and to the climate – outweighs any short-term gain.”

EVs Unplugged

Another area of contention in the new budget is how it treats plug-in hybrid vehicles – a popular stepping stone between ICE and full EV. Jackson tells us that PHEV drivers will “be hit with a double whammy” as drivers will face a fuel duty increase alongside a pay-per-mile rate.

“Although the PHEV rate of 1.5p is lower than that of full EVs, the double tax may significantly impact high-mileage PHEV drivers and put others off altogether,” he says.

Transport & Environment, on the other hand, believe that this budget does plenty of favours for PHEV drivers in return for relatively low environmental dividends.

“PHEVs receive significant tax breaks under VED and now under eVED. This is despite the fact the PHEV emissions are five times higher in real world performance compared to their official ratings, bringing them close to pure ICE vehicles for their CO2 contributions,” says Dexter. “Given this, and that PHEVs tend to be bigger and heavier, continuing and extending tax breaks is flawed and risks undermining the UK’s electric transition.”

Ultimately, Bushnell believes the outcome of this budget will be a negative one for the UK’s transition to electric vehicles.

“Taken together, these measures will make electrification harder, not easier. Businesses are ready to invest in cleaner vehicles, but today’s Budget sends mixed signals,” he concludes. “It highlights the growing imbalance between fiscal tightening and the need for long-term investment in sustainable transport.”

Jackson proposes that there are other measures the government could have taken.

“It is estimated that there are over 130 different EV models for sale in the UK. Currently, only two of those are eligible for the full £3,750 ECG grant,” he says. “If the government really wants to drive EV adoption in a more meaningful way, it could change the qualifying criteria and expand consumer choice.”

Dexter also agrees that ultimately, this budget appears disappointing, where the were opportunities to drive EV adoption and increase revenue.

“The Government missed a huge opportunity to make polluters pay fairly and raise vital revenue by introducing a Large Vehicle Levy on oversized SUVs to reflect their outsized road wear, emissions, and safety impact,” he says. “This could have raised almost £2 billion annually, which could have funded the extension of the EV purchase grants announced in this budget. The UK currently has one of the lowest tax rates in Europe on large SUVs. It also would have offered a progressive means to raise revenue on new, large EVs.”