Chancellor Rachel Reeves has been warned that her flagship pay-per-mile tax on electric vehicles risks burning a £4.8 billion hole in the Treasury’s own coffers, with potentially serious knock-on consequences for the small and medium-sized businesses that support Britain’s emerging clean transport sector.
In a strongly worded letter to the Chancellor of the Exchequer Dan Tomlinson, a coalition of trade associations representing electric vehicle drivers, renewable energy companies and charging operators argued that the Chancellor’s new excise duty on electric vehicles, due to come into force on April 1, 2028, could backfire spectacularly. Their argument: The tax will suppress new car sales so much that it will ultimately cost the state treasury significantly more than it brings in.
The tax, announced in the November 2025 Budget, will charge fully electric car drivers 3p per mile and plug-in hybrid car drivers 1.5p per mile. Treasury forecasts suggest expected revenue will be £1.1bn in 2028-29, rising to £1.9bn by 2030-31. However, the number crunchers in the industry paint a completely different picture.
Research from Beama, the trade association representing energy infrastructure companies, suggests the Treasury could lose out on £630m of VAT revenue in 2028 alone as motorists postpone buying electric vehicles. In a worst-case scenario, if buyers also delay ordering petrol and diesel vehicles ahead of the looming ban on internal combustion engines, the total damage to the UK economy could be £4.8 billion.
“Early adoption of pay-per-mile policy is a fiscal self-important,” said Beama’s Matt Adams. “It will slow the uptake of electric vehicles, reduce investment in EV charging and cost the UK economy more than the Treasury can raise through taxation.”
The warning has particular significance for the thousands of SMEs operating in Britain’s emerging EV ecosystem, from independent charge point installers and small fleet operators to clean tech start-ups and aftermarket specialists. Many of these smaller companies have invested heavily on the assumption that electric vehicle adoption will continue its upward trajectory and are using rising registrations to justify capital expenditures, hiring and expansion plans. A sudden collapse in demand, the trade groups argue, would leave a long line of smaller operators dangerously exposed.
Signatories Beama, ChargeUK, EVA England and the Renewable Energy Association point to precedents abroad that should give the Chancellor pause. The introduction of a mileage charge in Iceland caused sales of new electric vehicles to plunge by 75 percent in 2024, while a similar measure in New Zealand caused a 50 percent plunge.
Repeating this pattern on UK roads would have a profound impact on public finances, trade bodies argue, as electric vehicles cost on average £6,000 more than their petrol and diesel equivalents and therefore generate proportionately higher VAT revenue when purchased.
Jarrod Birch, head of policy at ChargeUK, said the timing of the proposed levy was particularly poorly judged. “Electric vehicles are enjoying growing interest as an alternative to fluctuating gasoline prices,” he said. “The government should double down on the transition by making purchasing and charging an electric vehicle affordable for everyone.”
There has actually been a surge in electric vehicle sales in recent months, driven in part by volatility in oil markets following the outbreak of the Iran War. But trade groups warned that this short-term increase is likely to prove temporary and that the structural impact of a per-mile charge could weigh on the sector in the coming years.
A Treasury spokesman defended the government’s broader approach. “This Government is committed to the transition to electric vehicles, increasing support to save motorists up to £3,750 on a new car and investing over £3 billion in UK manufacturing and more charging points,” they said.
But for Britain’s SME-heavy charging and clean tech sectors, the key question is whether these incentives will be enough to offset the chilling effect of a tax that critics say could pull the rug out from under the very transition that Whitehall claims to be championing. With less than two years until the obligation comes into force, the Chancellor has time to rethink. Whether she will do so is a completely different question.
