The UK unveiled its 2025 Autumn Budget on November 26,2025, with closing a £22 billion public finance gap seen as a significant focus. As part of this strategy, Battery Electric Vehicle (BEV) and Plug-in Hybrid Vehicle (PHEV) drivers are set to pay more tax. It raises the question of whether rising costs for Plug-in Vehicle (PEV) owners threaten the UK's momentum toward net-zero carbon emissions.

UK set to increase total cost of ownership for EV buyers

Currently, Zero Emissions Vehicles (ZEVs), dominated by BEVs, incur a vehicle tax of only £10 in the year of registration and £195 in subsequent years, with no fuel duty liabilities. Meanwhile, depending on CO2 emissions (g/km), Internal Combustion Engine (ICE) and hybrid vehicle drivers face a vehicle excise duty of up to £5,490 in the first year, followed by a flat rate of £195. The cost of ownership of petrol or diesel vehicles becomes even higher when the average annual fuel duty of £480 is factored in.

Although the purchase cost of BEVs is generally higher than that of ICEs and hybrids, the lack of a tax corresponding to fuel duty for BEVs keeps their total cost of ownership comparable to other propulsion types and, therefore, motivates buyers to make the switch.

However, beginning in April 2028, the UK government will introduce a new tax on PEVs - the Electric Vehicle Excise Duty (eVED). It is essentially the government's way of introducing a fuel-duty-style charge for PEV owners, helping to offset declining fuel duty revenues (worth up to £28 billion to the exchequer annually) as more consumers shift to PEVs in line with the government's zero-emission roadmap.

Under the new system, BEV drivers will be charged a road tax of 3p per mile, while PHEV drivers will face a tax of 1.5p per mile. For example, a BEV driven for 8,500 miles would incur a tax of £255, which is roughly half the average fuel duty of £480 currently paid by petrol and diesel drivers.

While the rate remains lower than for ICEs, it narrows the gap in incentives and total cost of ownership benefits from owning a PEV compared with a pure-ICE or non-PEV car. In theory, this may deter some buyers from switching to plug-ins, particularly BEVs, and risk undermining the UK's ambitious target to achieve 80% and 100% ZEV sales by 2030 and 2035, respectively.

BEV subsidy set to fall short

To offset the effect of the pay-per-mile tax, the UK government has boosted funding for the Electric Car Grant scheme by an additional £1.3 billion and has extended it by one year, so that it will now run until March 2030. Model eligibility depends on several factors, including vehicle price, production carbon footprint, and manufacturers' sustainability commitments. These criteria have initially restricted the pool of qualifying models.

The Electric Car Grant scheme provides an incentive for some buyers to adopt BEVs but overall, BEV sales are still likely to be weaker than they would have been without the introduction of the pay‑per‑mile eVED. As such, it could significantly undermine manufacturers’ and the government's ability to meet increasingly stringent ZEV targets. The Office for Budget Responsibility (OBR) shares this concern, projecting that the expanded Electric Car Grant scheme may only offset around 320k units in lost sales, implying a net reduction of approximately 120k BEV sales over the next five years.

UK’s ZEV target under threat

Despite recent flexibilities introduced to help manufacturers meet the annual BEV target, it remains challenging for many automakers, with several continuing to call for additional support and further flexibility to comply, or risk substantial fines.

While we anticipate that some manufacturers will meet the standards, we believe that overall BEV sales will fall short of the UK's 2030 milestone. To reach this goal, BEV sales need to grow by 30% year-on-year (YoY) starting from now, which we consider to be exceedingly optimistic. A more realistic projection would be an annual growth rate of 17%. Therefore, we estimate that BEV sales will account for 57% of total UK Passenger Car volumes by 2030, significantly below the government's target of 80%.

Given this context, the UK government is likely to follow the EU's lead in providing some form of target relief to help carmakers transition to net-zero without jeopardizing the local auto industry. Meanwhile, we do not expect any additional BEV incentives over and above the existing ones, due to the tightening of public funding. On a political level, the next general election, due in 2029, could be a turning point for the net-zero mandate. Some parties, such as Reform, have proposed scrapping the targets, claiming they are detrimental to the economy. If Reform is elected, the UK government could eliminate all incentives for low-carbon transportation, delaying the country’s net-zero ambitions.

In conclusion, the additional cost of the pay‑per‑mile tax will likely deter some buyers from switching to electric, making it harder to achieve the ZEV mandate. It may also force further concessions on the targets, unless the government is willing to strengthen support through purchase subsidies, accelerated investment in charging infrastructure, and favorable tax policies that reduce the total cost of ownership for buyers and help sustain BEV sales growth.

Chung Fu Lee, Analyst, Powertrain