The Chancellor has set out in the Autumn Budget her proposals for a distance-based charge on electric vehicles and plug-in hybrids, in order to shore up falling tax revenues as a result of lower fuel duty receipts.

ITS UK has welcomed the move, which marks the first major shift to national road pricing in more than 20 years, but has urged the Treasury to consider a smarter approach to the scheme.

What is in the announcement?

The Chancellor has proposed a new distance based tax for electric vehicles and plug-in hybrids to come in from 2028. In 2028-29, the charge will be £0.03 per mile for EVs and £0.15 per mile for hybrid plug ins, increasing annually with inflation.

This new charge is expected to raise £1.1 billion in its first year, increasing to £1.9 billion in the following year. The OBR state that they expect electric vehicles sales to fall by 440,000 due to the measure, but the Government expect manufacturers to continue to hit EV mandate targets by reducing prices.

The Government has also launched a consultation on the measures, running until March 2026. Of relevance to the transport technology sector, the consultation document says: “The government recognises that the large majority of EVs and PHEVs have in-built vehicle telematics, which monitor various driving activities and are viewable by drivers, vehicle manufacturers, or permitted third parties in some cases. The government will not mandate use of these telematics for administering eVED; however, it welcomes views on how various types of technologies could be used on an opt-in basis in future to simplify the system and reduce administrative burdens on motorists and businesses. Protecting motorists’ privacy as part of eVED is a priority for the government, so any potential tech-based solutions considered in future will only ever be optional.”

Reaction

ITS UK has welcomed the announcement but called for a smarter approach.

Max Sugarman, Chief Executive of ITS UK, said: “We strongly welcome today’s announcement by the Government setting out, for the first time in more than two decades, a shift to a distance-based national road pricing scheme. The EV mileage charge is much needed in order to meet the emerging gap in tax revenue from falling fuel duty receipts, as our vehicle fleet electrifies, and means we can finally move to a fairer, more effective road tax system, that charges based on usage.

“The UK transport technology sector offers the proven capabilities and expertise to deliver this new road pricing scheme in a smarter, more effective way than a simple odometer reading. The industry has the tools to introduce a road pricing system, utilising digital connectivity and roadside infrastructure, that can give policy-makers greater levers to manage their transport networks, and deliver a more effective system for the Treasury too, covering issues, for example, around foreign vehicles. We look forward to working with the Government, on behalf of the sector, as they consult on these proposals.”

Other transport announcements

There were a number of additional transport announcements in the Budget too, including:

• Support for major rail projects including the development of East West Rail and the Transpennine Route Upgrade.
• A one-year freeze on regulated train fares, for the first time in 30 years, starting from March 2026.
• £891m to complete the publicly funded works for the Lower Thames Crossing.
• Extension of the 5p fuel duty cut until the end of August 2026 with rates then gradually returning to March 2022 levels by March 2027. 
• Freeze of the £3 bus fare cap in England until March 2027. 
• By 2029-30, the Government will commit over £2 billion annually for local authorities to repair, renew and fix potholes on their roads

Max added: “We welcome other measures in this Budget too – including the rail fares freeze, the inclusion of funding for projects like the Lower Thames Crossing, TransPennine Route Upgrade and Midlands Rail Hub – all of which will support greater connectivity for communities across the UK.”