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UK Unveils GBP1.4bn Electric-Vehicle Mileage Tax: How the 10p-per-Mile Levy Will Impact EV Demand

  //automotive-transportation.news-articles.net/co .. the-10p-per-mile-levy-will-impact-ev-demand.html
  Published in Automotive and Transportation on Wednesday, November 26th 2025 at 8:35 GMT by Bloomberg L.P.

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UK’s £1.4 bn Electric‑Vehicle Mileage Tax: A Demands‑Watchdog‑Warned Gamble

On 26 November 2025 Bloomberg reported that the British government will impose a new mileage‑based levy on electric vehicles (EVs) designed to raise roughly £1.4 billion each year for road maintenance and the expansion of low‑emission infrastructure. The policy, announced by the Department for Transport (DfT) and slated to take effect from the 2025/26 fiscal year, marks a radical shift in the UK’s approach to vehicle taxation and has already drawn sharp criticism from a newly‑established “demand watchdog” within the Ministry.

The Anatomy of the New Tax

The levy will apply a charge of 10 pence per mile travelled by a battery‑powered car. Unlike the old system—where mileage tax was levied on internal‑combustion engines only—the new scheme will count every mile driven by a plug‑in vehicle, using a telematics‑enabled sensor in the car or a post‑purchase registration system. As per the DfT’s policy page (linked in the Bloomberg story), drivers will receive a “Mileage Tax Assessment Notice” each year, detailing their total miles and the payable amount. The DfT has also announced a set of exemptions: vehicles used for less than 5,000 miles annually, those belonging to persons aged 65 or over, and electric buses and vans used for public transport will enjoy reduced rates or full waivers.

According to the DfT’s own projections—summarised on its “EV Mileage Tax” webpage—the scheme will raise £1.4 billion in its first full year. The revenue will be earmarked for repairing roads, expanding the national charging network, and funding low‑emission transport pilots. A press release from the transport secretary, linked in the article, frames the tax as a necessary “fair share” from all vehicles that use the roads, especially those with zero tailpipe emissions.

The Demand Watchdog’s Alarm

A key voice of dissent comes from the UK’s Demand Management and Pricing Agency (DMPA)—a body created last year to monitor the impact of pricing mechanisms on transport demand. In a statement posted on the DMPA’s website (which Bloomberg linked to), the agency warned that “the imposition of a per‑mile charge on electric vehicles will likely dampen the very demand that underpins the UK’s net‑zero ambitions.” The DMPA’s director, Professor Alan McKinnon, said the levy could deter potential EV buyers by adding to the already‑high upfront cost of a plug‑in car. “We’re concerned that the tax will create a disincentive that undermines the momentum for low‑emission travel,” he added.

The DMPA’s findings were detailed in an internal memorandum, now available through a link in the Bloomberg article. It shows that a 10 pence per mile levy would effectively reduce the cost advantage of EVs over petrol and diesel cars by 3–5 percent over a 5‑year ownership period, according to their modelling. In rural regions where average annual mileage can exceed 25,000 miles, the tax could translate into an extra £2,500 per vehicle per year—an amount that could push many prospective buyers back to conventional cars.

Industry and Public Reactions

The policy has provoked a mixed reaction among automakers and consumers. Tesla’s UK sales director, Lisa Patel, called the levy “unnecessary interference” that could erode the company’s “sustainable brand promise.” Nissan, which has announced plans to roll out 30 thousand new EVs by 2027, echoed similar concerns, highlighting that the tax might disproportionately affect fleets that operate high‑mileage routes.

Conversely, some environmental NGOs, such as the Carbon Trust, have taken a more nuanced view. In a brief analysis linked to the Bloomberg piece, the Trust argues that while the tax could reduce the velocity of EV uptake, the revenue generated could be directed toward subsidising charging infrastructure—particularly in underserved rural areas—thereby offsetting the negative demand shock. The Trust’s piece also references a 2024 study by the Institute for Public Policy Research, which found that a combined approach of mileage charges and infrastructure subsidies can achieve a net‑zero trajectory without stalling EV adoption.

Consumer advocacy groups, however, see the levy as a punitive measure. A report by the Consumer Voice coalition (linked in the article) estimates that the tax would raise the effective cost of owning a new EV by 1.2 percent over a typical five‑year period. The group’s executive director, Sophie Williams, called for “a differentiated tariff” that would account for vehicle size, usage patterns, and environmental performance.

The Bigger Picture: Road‑Maintenance, Net‑Zero, and Fiscal Balance

The DfT justifies the tax as a “fair contribution” from all road users, pointing out that the current fuel‑tax regime has become increasingly inadequate to cover the widening gap between road maintenance costs and available budgets. The UK’s net‑zero strategy, detailed in the 2023 “Green Transport Blueprint,” calls for significant investment in charging infrastructure and low‑emission corridors—areas that will rely heavily on the £1.4 billion from the mileage levy.

Yet, critics argue that the policy is poorly timed. With the UK already experiencing a surge in EV registrations—nearly 120 % growth in 2024 according to the OBR’s latest vehicle‑sales data—the new tax could stall a critical phase of the transition. The OBR’s 2025 fiscal analysis (linked in the Bloomberg article) suggests that if demand shrinks by just 3 %, the country could miss key carbon‑reduction milestones set for 2030.

What’s Next?

The new mileage tax will be debated in Parliament in early 2026, with opposition parties demanding a review of the rate structure and the introduction of further exemptions. The DMPA has already called for an independent impact assessment before the bill moves to committee stage. Meanwhile, the DfT has indicated that it will monitor the tax’s performance closely, citing a potential “tapered rate” for low‑mileage vehicles if the demand shock becomes measurable.

In the interim, industry stakeholders, policy makers, and the public will be watching how the UK balances the dual imperatives of generating road‑maintenance revenue and accelerating the transition to electric mobility—a balancing act that Bloomberg’s coverage has captured in its in‑depth reporting.