The UK car market is bracing for major disruption as an EV tax shock triggers unexpected consequences for both buyers and manufacturers. Chancellor Rachel Reeves has unveiled a new 3p-per-mile tax on electric vehicles, a move experts say could reshape the industry and strain Britain’s path toward net zero. The policy, announced in the Budget, makes EV ownership more expensive and risks slowing adoption at a time when the government requires carmakers to sell an increasing share of electric models.
Why the EV tax shock is unsettling manufacturers
Industry leaders warn that this EV tax shock will drive down demand for electric cars, pushing buyers back toward petrol and diesel models. Yet carmakers cannot allow that shift because of strict Zero Emission Vehicle (ZEV) mandate rules. Manufacturers must ensure that 33% of their sales this year are electric or face hefty fines. To stay compliant, companies may be forced to ration petrol and diesel cars and raise their prices, even as they discount EVs heavily to meet quotas.
Robert Forrester, chief executive of Vertu Motors, said the industry was already rationing combustion-engine sales before the Budget. He believes the new pay-per-mile tax will worsen the imbalance and create “turmoil” as dealers battle declining demand and rising compliance pressures.
How the EV tax shock affects consumers
Under the new tax, drivers must estimate their annual mileage and pay a fee alongside their road tax starting in 2028. For an average EV driver covering 8,500 miles a year, the charge would be around £255. According to the Office for Budget Responsibility, the EV tax shock could reduce electric-vehicle sales by 440,000 units by 2030. With EVs still more expensive to produce than petrol cars, many manufacturers say they cannot lower prices further because they are already operating at a loss.
A growing risk of market distortion
Experts at the Institute for Fiscal Studies warn that the EV tax shock might push petrol and diesel prices even higher. If EV demand drops, companies must compensate by reducing non-EV sales to keep the electric share stable. This counter-intuitive effect means a tax on EVs ultimately raises the cost of combustion cars as well.
A widening gap between UK and Europe
Industry leaders fear that the UK may chart a different course from the European Union, where policymakers are considering easing emissions targets. Many warn that without adjustments to the ZEV mandate, Britain could fall behind international trends or create unnecessary pressure on consumers and manufacturers.
With affordability concerns rising, the government faces calls to revisit its targets before market instability grows.
