Millions of hybrid drivers face double tax under Rachel Reeves' pay-per-mile EV plans

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Hybrid drivers across the country face being hit with double tax under Rachel Reeves' plans to introduce a pay-per-mile electric levy - which will also apply to petrol and diesel cars.

Plug-in hybrid vehicles (PHEVs), which have both a small battery and a conventional engine, will be slapped with a 1.5p-a-mile charge under the electric Vehicle Excise Duty (eVED). 

The tax, set to come in in 2028, was announced at the Chancellor's budget last week. The plan will see drivers of battery-only cars pay 3p a mile.

This will mean Britain's millions of hybrid drivers, who will have to pay for miles driven using both their battery power and conventional fuel, will be taxed again on top of the fuel duty. 

Sales of PHEVs have skyrocketed in recent years, accounting for one in 10 of all cars sold.

This year, 190,240 PHEVs have been sold - an increase of 37 per cent on 2024, according to The Society of Motor Manufacturers and Traders (SMMT). That's half the volume of electric vehicle registrations and around a quarter of petrol car sales.

According to Zapmap, there are currently over 948,000 PHEVs on Britain's roads today.

Millions of hybrid drivers face being taxed twice under Rachel Reeves' plan to introduce a pay-per-mile electric levy that will also apply to petrol and diesel cars

Chief executive of the SMMT Mike Hawes described any form of double tax as 'punitive' and predicts it will 'dissuade' buyers.

He told The Times some drivers are 'understandably anxious, especially those with concerns over charging availability or those who regularly do long journeys'. 

Mr Hawes also explained how hybrids are a 'crucial step' towards full EV, so slapping them with a double tax for fuel and eVED will deter many from investing in this 'beneficial technology'.

AA president Edmund King told This is Money that the Treasury's sums on the 1.5p per mile tax on PHEVs is 'more questionable' in an exclusive in-depth look at the Government's new road pricing scheme.

He said: 'The rate for plug-in hybrid is 1.5p per mile. Many PHEVs will do around 50 miles on electric and the rest on petrol.

'Take someone doing a journey of 150 miles: you will only get the benefit of electric for 50 miles but you will pay 1.5p for 150 miles and you will pay fuel duty for 100 of those miles.

'Many people will question whether it is worth opting for a plug-in hybrid when this comes in - yet we've always said they are a good stepping stone into electric.

'The Treasury told the AA that they aren't trying to put people off PHEVs, but one can question that.'

Plug-in hybrid vehicles have a petrol engine supplemented by a small onboard battery and electric motor that can deliver around 50 miles when driven exclusively in EV mode. Under the Chancellor's plans, drivers will be charged 1.5p per mile, which is a double tax on top of the fuel duty they pay when filling up the petrol tank

PHEVs are currently seen as a stepping stone to EV ownership, but AA president Edmund King told This is Money the introduction of pay-per-mile taxation will make them less appealing

Earlier this week, Robert Forrester, chief executive of nationwide motor showroom Vertu Motors, said the tax raid on EVs will be a hammer blow to demand and force brands to ration the number of petrol cars they bring into the country.

Auto Express polling found 32 per cent of people believe the new tax was 'poorly timed' and would slow the transition to electric vehicles. 

And 23 per cent said it was 'unfair' because EV drivers already pay road tax and VAT.

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Analysis by research group New AutoMotive found similar taxes launched in Iceland and New Zealand resulted in 'a severe and immediate collapse' in market share for electric vehicles.

In Iceland, a 5p-a-mile tax and the withdrawal of subsidies for EVs at the start of last year saw a fall in market share from around 40 per cent in 2023 to just 13 per cent in 2024.

New Zealand introduced a 2p-a-mile tax and withdrew subsidies in early 2024 which saw the market share for EVs fall from 18 per cent to 6 per cent.

The Office for Budget Responsibility, the fiscal watchdog, estimated that the introduction of eVED will 'reduce demand for electric cars as it increases their lifetime cost', with an estimated 440,000 fewer EV sales across the next five years.

However, the Treasury said the OBR's calculation failed to take into account other measures announced by the Chancellor in the Autumn Budget to help drive sales - including an additional £1.3billion in funding for the Electric Car Grant, an increase to the Expensive Car Supplement threshold for EVs when levying the standard rate of VED, and more investment in bolstering the charging network.

As such, it predicted the EV shortfall between now and the end of the decade to be closer to 120,000 battery cars.