UK chancellor Rachel Reeves has used the 2025 Budget to confirm a new mileage-based user fee for electric vehicles (EVs), alongside a further year of frozen rail fares in England, new support for EV charging infrastructure and backing for major road and rail schemes.
At the centre of the transport package is Electric Vehicle Excise Duty (eVED), a national mileage-based charge for electric and plug-in hybrid cars from April 2028. Drivers will pay for their mileage alongside existing Vehicle Excise Duty, with the tax for electric cars set at 3p per mile (around half the fuel duty rate paid by the average petrol or diesel car), and plug-in hybrids paying half the electric rate (1.5p).
The Treasury says an average EV driver will pay around £240 a year, or £20 a month, once the system is fully in place. Vans, buses, motorcycles, coaches and HGVs will initially sit outside the scheme, reflecting slower progress in electrification for those vehicle types.
The government has launched a consultation on how eVED will operate, ruling out any requirement for in-vehicle tracking or reporting where and when miles are driven, and committing to work with industry and motoring groups on implementation.
Ben Plowden, chief executive of Campaign for Better Transport, argued that the combination of eVED with changes to fuel duty and rail fares begins to rebalance modal costs. He said the Budget is “finally starting to rebalance transport costs towards more sustainable modes,” welcoming a “proportionate pay-per-mile charge on electric vehicles” as a way to restore fairness in transport taxation and avoid “a looming budget black hole as the transition to electric vehicles gathers pace”.
However, other groups warned about timing and design. Vicky Edmonds, CEO of EVA England, described this as “completely the wrong time to be taxing EV drivers when they still make up only 5% of vehicles on UK roads,” adding that “loading additional barriers onto early adopters is a sure way to stall progress”.
For fleets, the exemption of electric vans from eVED was seen as critical. Michael Shaw, CEO of Aegis Energy, said the decision “could have discouraged businesses from investing in cleaner vehicles at a time when confidence is critical” if the tax had been applied to commercial EVs, but cautioned that the regime must be “transparent, fair and efficient” to maintain momentum in decarbonising commercial transport.
Industry bodies representing the wider intelligent transport sector broadly welcomed the shift towards distance-based charging. ITS UK chief executive Max Sugarman said the announcement “means we can finally move to a fairer, more effective road tax system, that charges based on usage,” arguing that UK transport technology suppliers can deliver “a smarter, more effective way than a simple odometer reading”, including better tools for network management and charging foreign vehicles.
Richard Sallnow, transport expert at PA Consulting, called the move “an inevitable step” given the projected collapse in fuel duty receipts, but stressed the need for a simple, privacy-preserving start. “The quickest, fairest way to start is a simple mileage-based charge for zero-emission vehicles, verified through annual mileage readings,” he said, backed by clear communication and transitional measures “such as free annual miles or phased charges”.
Others raised concerns about the cumulative cost impact. David Bushnell, director of consultancy and strategy at Fleet Operations, warned that the combination of a per-mile charge and other tax changes would make “zero-emission vehicles more expensive to acquire, operate and remarket” and could lead, by the government’s own admission, to hundreds of thousands fewer EV sales over the forecast period.
Fuel duty, bus fares and rail fares
On conventional fuels, the Budget extends the 5p-per-litre cut in fuel duty and maintains the cash freeze on main fuel duty rates, with the temporary reduction now in place until 30 September 2026. This is the 15th consecutive year fuel duty has been frozen, which the Treasury says saves the average car driver around £4 each time they fill up at an overall cost of around £5bn a year.
The government also confirmed that regulated rail fares in England will be frozen for one year from 1 March 2026, while the £2 single bus fare cap in England will be maintained for a further year from 1 April 2026.
Campaign for Better Transport has already welcomed the rail freeze, arguing that cost is “the number one concern” for people considering rail. Plowden said the decision will “enable more people to choose rail, reducing traffic on our roads, benefitting the economy, helping the environment, and connecting communities across the country”.
In the bus sector, the Confederation of Passenger Transport (CPT) warned that wage and fuel pressures remain acute for operators despite the fuel duty freeze.
Alison Edwards, CPT’s director of policy and external relations, said labour already makes up more than half of bus operating costs, and that the phased reversal of the 5p cut would add further pressure “particularly given the government has again missed the opportunity to exempt bus and coach operators from any rise”.
She argued that exempting the sector from higher fuel duty would avoid placing “£142m per year of pressure on already tight margins”, protecting investment in frequencies, new routes and cleaner fleets.
Edwards nonetheless described the EV mileage charge as “the big news for the long-term future of transport”, suggesting road user charging “which reflects usage can be fairer and can help accelerate the shift toward more sustainable public transport by encouraging people to think twice before making unnecessary car trips”.
EV grants, charging and local roads
The Budget is accompanied by a package of measures to support the EV transition. The Electric Car Grant, launched in July, receives an extra £1.3bn and is extended to 2029-30 after already helping more than 35,000 drivers with grants of up to £3,750 off eligible models.
The government will also raise the threshold for the Vehicle Excise Duty Expensive Car Supplement for zero-emission vehicles from £40,000 to £50,000 from April 2026, a change expected to save more than a million motorists about £440 a year. Funding for the DRIVE35 programme will be extended with an additional £1.5bn to 2035, taking total support to £4bn for next-generation zero-emission automotive manufacturing.
On infrastructure, the Budget allocates £100m for local authorities and public bodies to build specialist capability to plan and deliver public chargepoints, and a further £100m for EV charging infrastructure, including home and workplace chargers, on top of £400m announced at the 2025 Spending Review. It also introduces a 10-year 100% business rates relief for eligible public chargepoints and EV-only forecourts, and extends 100% first-year capital allowances for zero-emission cars and EV chargepoint infrastructure to spring 2027.
Revenues from eVED are earmarked to support higher long-term spending on local road maintenance. By 2029-30 the government plans to commit over £2bn a year for local authorities to repair, renew and fix potholes, double the level when it came into office, with ministers claiming this will enable “millions” of potholes to be filled annually.
Major road and rail schemes
On strategic infrastructure, the Budget maintains support for a series of large projects, including the Lower Thames Crossing, enhancements to city-region transport networks, Midlands Rail Hub and the Transpennine Route Upgrade. It also confirms backing for the DLR Thamesmead extension, framed as part of a wider effort to improve connectivity in fast-growing urban areas and support housing delivery.
Responding to the package, Blake Richmond, CEO at Resonate Group, said “freezing rail fares keeps train travel affordable, which not only eases the cost of commuting for workers but also supports the wider economy by encouraging spending, connecting people to jobs, and strengthening the leisure market”. He welcomed further investment in “data technologies and AI” to modernise rail processes and create “more opportunities to develop AI to optimise these flows across an increasingly connected transport system”.
Campaign for Better Transport, however, criticised the inclusion of the Lower Thames Crossing in the list of priorities. Plowden said that while the need to tackle south-east England’s transport pressures is accepted, “an expensive road tunnel is not the way to do it,” repeating the organisation’s call for a greater emphasis on rail and public transport solutions and for closing what it describes as the “aviation tax loophole” on jet fuel.
VAT changes for private hire vehicles
Alongside motoring tax reform, the chancellor moved to close what the Treasury describes as an unintended VAT advantage for some ride-hailing and private hire operators. From 2 January 2026, private hire vehicle operators (PHVOs) in London and all PHVOs nationwide that act as ‘principal’ will pay VAT in the same way, with the Tour Operators’ Margin Scheme (TOMS) no longer available for standalone taxi and PHV services.
Mathew Oliver, partner at law firm Osborne Clarke, said the change means “there are not going to be wholesale changes to VAT rules for private hire operators” beyond clarifying that TOMS does not apply to PHV and taxi services unless supplied with other travel services.
However, he highlighted that the move will “still be inconsistency in the market between London – where PHVOs cannot act as agents, so all fares will be subject to 20% VAT unless the limited TOMS exemption applies – and the rest of the country,” where many operators are likely to maintain or shift to a disclosed agency model to minimise VAT. He warned that this would have “a cost-of-living impact for people in London using private hire vehicles”.
Local government leaders said they would now scrutinise the wider fiscal settlement. Cllr Kevin Bentley, senior vice chairman of the Local Government Association, welcomed steps toward “greater financial certainty and a simpler funding system,” but warned that the Budget “does not provide the increase in funding [councils] desperately need” to sustain local services, including home-to-school transport and road maintenance.
