Reeves slams the breaks on Labour’s EV revolution

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Labour ministers want you to buy an electric vehicle (EV). Or do they?

Heidi Alexander, the Transport Secretary, pledged to make it “cheaper for those who do want to make the switch” in July, before announcing a grant of up to £3,750 for qualifying EVs.

Yet just four months later, Rachel Reeves is now mulling a high-profile tax raid that could add hundreds of pounds to the annual running costs of an electric car.

The Chancellor’s “pay-per-mile” scheme, which is expected in the Budget and understood to be planned from 2028, is being pitched behind the scenes as a move towards greater fairness.

A typical petrol car driver currently pays around £600 per year in fuel duty, which is effectively a tax on distance travelled. By comparison, there is no similar levy on EV drivers.

Reeves’ scheme, first revealed by The Telegraph, would charge drivers of electric cars 3p per mile – costing them around £250 a year on average.

The logic of ending this disparity between models is relatively sound, and pay-per-mile pricing has long been advocated by think tanks.

But the timing of the change has raised the hackles of the car industry, which feels it has been repeatedly messed around by successive governments in recent years.

They complain it is another example of a confused policy, just two years after Rishi Sunak very publicly delayed a ban on sales of new petrol cars – while quietly introducing strict EV sales targets for manufacturers.

On Monday, the Society of Motor Manufacturers and Traders (SMMT) warned that a pay per mile tax would act as a “major deterrent to drivers of new and used cars alike from switching to EVs”.

It came as new figures showed that EVs made up 4pc of used car sales in the third quarter of 2025, up from 2.8pc during the same period a year earlier.

The figures underline that while EVs are gaining in popularity, they remain a small fraction of the overall market. Used car transactions account for about three quarters of all sales.

“When Labour is giving money through grants on the one hand and then taking it back through the other [with a pay per mile tax], I think people will see this isn’t joined up thinking,” complains one insider.

“It just looks like they are trying to plug gaps in tax revenue.”

Adding to this perception is the fact that the Chancellor is also to impose business rates on parking bays featuring electric car chargers.

Nine charging companies have written to the Treasury warning that the plans will raise the cost of charging electric vehicles by hundreds of pounds and put £8bn of planned investment at risk.

Supporters say it makes sense to implement pay per mile for EVs sooner rather than later, because fuel duty revenues are set to begin plunging towards the end of this decade.

It might also be canny politics. Better to implement one now, the argument goes, than risk an even bigger backlash later when even larger numbers of people to become used to not paying.

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The Government has not yet confirmed the pay-per-mile proposals but says it wants “a fairer system for all drivers whilst backing the transition to electric vehicles”.

“It is right to seek a tax system that fairly funds roads, infrastructure and public services,” a spokesman said last week.

Yet bringing in the tax when EV sales are arguably still in their infancy could also be a double-edged sword.

Critics warn that introducing pay per mile risks hurting demand for electric cars at a time when sales are finally starting to pick up. James Court, head of policy at Octopus Electric Vehicles, warns: “I think it’s far too early in the transition.”

“If you look at other countries that have tried to introduce this too soon or too early, including New Zealand, EV demand has fallen off a cliff,” he says.

Fully electric or hybrid vehicles dropped from almost 70pc of new vehicle sales in December 2023 to under 50pc by April 2024 after the government in New Zealand announced a pay per mile scheme.

“It’s a damaging message to send to consumers,” Court says.

Many EV advocates are also furious that the Government does not seem to be preparing to raise fuel duty in tandem, which would ensure that the savings drivers make when EVs remain about the same.

“This is yet another example of mixed messaging from the Government,” says Ginny Buckley, boss of advice website Electrifying.com.

“Drivers are being encouraged to go electric, then hit with the threat of new taxes . You can’t drive the EV transition with one foot on the accelerator and the other on the brake.

“If the Government introduces this, it must also unfreeze fuel duty – which hasn’t risen with inflation for over 14 years – to keep things fair as the transition continues.”

But that is also likely to face fierce opposition, with campaign groups warning they will “fight hard” against any increase.

“Fuel duty has remained frozen for the past 15 years, currently standing at 6p less than when the Labour Party was last in power,” says Howard Cox, founder of FairFuelUK.

“This has been of immense benefit to Britain’s motorists and has significantly strengthened the Treasury’s finances due to the consequential reduction in inflationary pressure.”

Court believes that a longer lead time than the mooted three years should be considered, giving drivers who have already bought EVs and those who are considering it more time to prepare.

David Martell, chief executive of charger manufacturer Andersen, agrees. He warns that “a rushed or poorly designed scheme risks undermining confidence in electric vehicles at a crucial time”.

“Drivers who’ve invested in EVs and home charging, often at significant cost, need stability and clarity, not uncertainty about how they’ll be taxed in future,” he says.

“If the Government gets this wrong, it could stall the transition to cleaner transport and damage a growing British industry built around home charging and EV innovation.”

Steve Gooding, director of the RAC Foundation, says the timing of a pay-per-mile tax was always going to be controversial – as no one ever wants to pay more if given a choice.

“Of course, the SMMT and others will say ‘now is not the right moment’. But it’s always a terrible moment for these things, isn’t it?”

The counter argument from industry is that they are still beholden to strict EV sales targets that leave manufacturers at risk of fines if they fail to hit them.

Under the zero-emission vehicle mandate, 28pc of all cars sold in the UK this year must be electric – rising to 80pc by 2030.

Hitting these targets will in practice reduce the Chancellor’s fuel tax take, something seemingly not accounted for when the policy was drawn up.

“The sensible moment to have said we’re going to introduce this charge is about two years ago,” says Gooding.

“You could have said: ‘Look, we’re going to introduce a distance charge but here is the bigger picture, here’s money we’re giving you off the purchase price, here’s a tax benefit we’re giving you, and therefore you can see that you’re still going to be in pocket compared to driving a petrol car.’

“But having delayed, you’ve got a lot of people who were not expecting this and who are now going to be very cross.”

Reeves must be able to “stand back and say: ‘Here is my coherent strategy across the piece’”, Goodings adds.

Can the Chancellor and her colleagues resolve the contradictions? In just over two weeks, when she delivers the Budget, drivers can judge for themselves.

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