Mixed messages and missed opportunities in Reeves’ Budget

New EV tax plans were inevitable but their timing and odd choices around incentives indicate a lack of joined-up thinking

So, as expected, Chancellor Rachel Reeves has announced plans to hit EV drivers with a pay-per-mile tax.

In a move that was as inevitable as it is unwelcome, the Budget included provision for a new 3p per mile levy on EVs, on top of existing Vehicle Excise Duty (VED). It’s expected to cost the average EV driver an additional £255 per year.

The Government says the new tax will make motoring costs fairer and help address the declining income from fuel duty on petrol and diesel.

There is no doubt the current outdated vehicle tax system needs to change and that EV drivers – who have enjoyed a privileged almost tax-free position in recent years – need to pay their fair share. But the next few years are crucial in bringing more drivers on board. Hitting them with extra costs at such a tipping point seems counterproductive.

We know that the vast majority of drivers who go electric never switch back. They’re happy with the ease of use, refinement and lower running costs. Even with this new tax, it’s likely that most EV owners will stick with electric.

But higher taxes are the kind of policy that will put off those that are still on the fence.

Having a government tell people to buy an EV, offer them cash incentives to do so, then tell them they’ll be hit with a new tax if they do sends wildly mixed messages.

In raw numbers, EVs will still be cheaper per-mile to run than an ICE car, but for drivers undecided about making the switch, it lessens the economic appeal. The Office for Budget Responsibility estimates that a pay-per-mile tax will shrink projected new EV sales by 440,000 over the next five years.

That’s a major slow down in demand, even if other incentives will partially offset it.

On those other incentives, it feels like the government has missed a trick.

More money for the Electric Car Grant is welcome. Manufacturers say it is clearly helping drive up EV sales, so extra funding and a years’ extension are both good news. So too is the lifting of the Expensive Car Supplement threshold. Cars, not just EVs, have rocketed in price since the “luxury car tax” was introduced and it seems ridiculous it has taken eight years to realign it.

However, all of these incentives are focused on the brand-new market. There was no mention in the Budget of support for the used sector.

The UK’s secondhand car market is more than three times the size of the new car market. If the Government really wants people to get into EVs, it should be incentivising used models just as much as brand new.

Perhaps some of that extra £1.3bn for the ECG could have been put to better use helping those who can’t afford brand-new to pick from the growing pool of excellent used EVs.