The 2025 Autumn Budget: what you need to know

The Chancellor confirmed the introduction of a new tax on EVs, called the Electric Vehicle Excise Duty (eVED).

With more people turning to EVs, tax revenues from Fuel Duty (which is imposed on petrol and diesel) have already started declining, and will continue to do so after the restrictions on new sales of fossil-fuelled vehicles comes into force in 2030. In fact, a recent report by the Tony Blair Institute for Global Change (Opens in new window) suggested that the government could lose £30 billion a year from reduced Fuel Duty revenues by 2040. 

In Budget 2025, Reeves has announced that EVs will face new mileage-based charges on top of existing Vehicle Excise Duty (VED) rates. This new tax will be introduced after a period of consultation. The plan is to impose a rate of 3 pence per mile (ppm) on battery electric cars and 1.5ppm for plug-in hybrid cars from April 2028. These rates would then increase annually in line with the Consumer Prices Index (CPI) measure of inflation.

It is suggested that with this surcharge, driving costs for EVs would still be “around half the fuel duty rate paid by the average petrol/diesel driver”. However, this new policy still represents an increase to EV whole-life costs. For example, for a battery electric car that travels 15,000 miles a year, which is around the average for a fleet vehicle, this new tax would add £400 a year to its bills.

On the other hand, the Budget confirmed an increase to the Electric Car Supplement (ECS) threshold for EVs. This £425 supplement is currently paid on top of VED by all cars worth over £40,000; which disproportionately affects EVs, since they tend to have higher purchase prices than their fossil-fuelled counterparts. As of April 2026, however, it will only be imposed on battery electric cars worth more than £50,000. 

Additionally, the government’s Electric Car Grant (ECG) scheme, which was introduced in July and takes up to £3,750 off the price of eligible zero-emission vehicles, has been extended to 2030. There’s also an extra £200 million for ChargePoint installation, as well as one-year extensions (to March/April 2027) to the 100% First-Year Allowances (FYAs) for qualifying expenditure on ChargePoint's and zero-emission vehicles.

Chancellor Reeves confirmed that Fuel Duty won’t increase in line with inflation in April.

However, Reeves is working to undo the “temporary, one-year” 5p cut that was introduced in March 2022. This cut will remain in place until the end of August 2026, at which point rates will be increased by 1p from 1 September 2026, another 2p from 1 December 2026, then another 2p from 1 March 2027.

In other words, the main rate of Fuel Duty will stay at its current level of 52.95 pence per litre until September next year, but not beyond.

The Chancellor had been expected to cap the amount that employees can contribute to their pension schemes through Salary Sacrifice without incurring National Insurance Contributions (NICs). But there was also speculation that a similar, tighter cap would be imposed on vehicles attained through Salary Sacrifice, thus limiting their tax-effectiveness.

In the end, Reeve’s changes did indeed apply only to pensions and not vehicles. As of April 2029, pension contributions above an annual £2,000 threshold will no longer be exempt from NICs.

In last year’s Budget, the government announced that Employee Car Ownership Schemes (ECOS) would be brought under the Company Car Tax (CCT) regime from April 2026. 

However, this latest Budget confirms that: “To allow more time for the sector to prepare for and adapt to this change in treatment, its implementation will be delayed to 6 April 2030, with transitional arrangements until April 2031.”