Rachel Reeves, the Chancellor of the Exchequer, is facing calls to introduce a pay-per-mile tax system in the upcoming Autumn Budget, as experts warn of a looming shortfall in fuel duty revenue caused by the rapid rise in electric vehicle (EV) use.
Declining Fuel Duty Revenues
The Resolution Foundation has published a report highlighting that government finances face a major challenge as drivers shift away from petrol and diesel cars. Currently, fuel duty amounts to around 6p per mile (plus VAT) for an average combustion vehicle. EVs, however, are exempt—leaving a growing tax gap as sales of electric models increase.
Proposed EV Mileage Charges
The think tank suggested that EV drivers could be charged based on vehicle weight:
- 3p per mile for cars weighing around 1,000kg
- 6p per mile for 1,800kg vehicles
- 9p per mile for 2,800kg models
This sliding scale reflects the greater road wear caused by heavier vehicles and mirrors international approaches to mileage-based taxation.
Fuel Duty Cut Expiry Could Save Billions
The Foundation also recommended letting the temporary 5p cut in fuel duty expire in March 2026. Removing the cut could raise an additional £3 billion a year, helping to ease budget pressures.
Road Pricing ‘Most Likely’ Option
According to the report, road pricing is the “most likely replacement” for fuel duty in the long term. However, it comes with significant political risks, as successive governments have resisted introducing such policies due to concerns about public backlash.
As the Autumn Budget approaches, all eyes will be on Rachel Reeves to see whether she will take the politically sensitive step of considering pay-per-mile taxation—a move that could reshape motoring costs for millions across the UK.
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