More tax increases will be affecting drivers from this year
The Government has spoken about major changes to the tax system for drivers. Motorists are required to pay vehicle excise duty (VED), also known as car tax, with the amount payable depending on the type of vehicle.
In a major shift from April 2025, the tax was extended to include electric vehicles, introducing a new e-VED levy. For electric vehicles registered between April 2017 and March 2025, the standard £195 rate applies. For newly registered electric vehicles, there is a reduced rate of £10 for the first year, which then increases to the standard £195 from the second year onwards.
James Murray, Chief Secretary to the Treasury, recently discussed these changes with a House of Lords Committee. He told the Economic Affairs Committee about how the Government’s policies are contributing to financial stability, such as efforts to boost tax revenues.
Mr Murray said that the introduction of the new e-VED levy was crucial, given previous warnings from the Office for Budget Responsibility (OBR) about the dwindling tax revenue from fuel duty. Mr Murray said: “It is an important long-term change.
“The actual impact of introducing e-VED within the scorecard in the coming years is significant, but the really significant achievement of introducing that is the long-term sustainability. There are things that should be on the scorecard that are worth looking at too.”
Long term sustainability
Mr Murray later discussed how the introduction of the e-VED would help maintain stable Government tax revenues. He explained: “I mentioned the e-VED, the electric vehicles charge instead of fuel duty, because fuel duty does not apply to electric vehicles.
“That is something that the fiscal risk and sustainability report [from the OBR] has highlighted in the past. That report highlighted the long-term decline in fuel duty, stating it was the single largest component of the fiscal cost of net zero across both tax and spending.
“The report really drew attention to the challenge of fuel duty receipts being in decline. Obviously, we see that as being important as well, so taking the decision around e-VED for electric vehicles is our way of responding to that risk to sustainability by making it sustainable in the long run.”
More tax increases coming soon
In a move to further increase Government revenues, more tax hikes are on the way for drivers. As set out in the Autumn Budget 2025, the threshold for the VED expensive car supplement for zero emission cars will rise from April 2026, increasing from £40,000 to £50,000.
This increased threshold will be applied retrospectively, meaning most vehicles registered from April 2025 will not have to pay the charge. A new pay-per-mile tax will also be introduced for electric cars from April 2028, set at 3p per mile for electric cars and 1.5p per mile for hybrid cars.
Electric vans, lorries, motorcycles, and buses will initially be spared from the new charge. The fuel duty freeze has been prolonged until September 2026, after which the temporary 5p reduction in the rate will be abolished.
Fuel duty rates will then increase in line with inflation. A Government document explains: “The Government has committed to a staggered reversal of the 5p cut between September and December 2026, and to increase fuel duty rates by Retail Price Index inflation from April 2027.”
