Treasury rushes to reduce electric vehicle charging expenses amid concerns about taxation

Government Plans to Lower EV Charging Costs

Rachel Reeves is working on measures to reduce the expense of charging electric vehicles, responding to concerns that a proposed pay-per-mile tax could significantly reduce interest in EVs.

Officials at the Treasury are urgently seeking ways to ease the financial burden on both consumers and businesses, after projections indicated that a 3p-per-mile tax on electric cars, set to begin in 2028, could negatively impact sales.

Downing Street is reportedly prioritizing the reduction of network fees at public charging stations, which have seen steep increases in recent years.

Additionally, the Treasury is considering lowering the current 20% VAT applied to public chargers at locations such as service stations, supermarkets, and residential streets.

In contrast, those who charge their vehicles at home pay a much lower VAT rate of 5%.

Recent discussions between government officials and industry specialists have focused on strategies to lessen the financial strain on drivers.

One participant in these talks noted growing anxiety within the Treasury that the pay-per-mile tax could severely dampen demand for electric vehicles.

On average, the new tax is expected to add £255 annually to the cost of owning an electric vehicle, as the government seeks to compensate for declining fuel duty revenue. Hybrid vehicle owners will also face a 1.5p-per-mile charge starting in 2028.

“The key to encouraging people to adopt electric vehicles is to demonstrate that the process is straightforward and cost-effective. Many stand to benefit from these savings,” a government insider commented.

The Issue of Public Charging Costs

Authorities are also consulting experts on how to simplify the regulations that determine energy prices at public charging points.

Advocacy groups have labeled the discrepancy in charging costs a “pavement tax,” highlighting that those reliant on public chargers pay much more than individuals with private, off-street charging options.

Another government source acknowledged that tax reductions are necessary to offset the impact of the pay-per-mile levy.

Some officials believe that subsidies could ultimately pay for themselves by boosting demand for domestically produced electric vehicles, such as the Nissan Leaf manufactured in Sunderland, thereby supporting the UK economy.

The government has recently faced a series of challenges, including having to reverse decisions on increased taxes for farmers and pub owners.

Automakers Push Back Against Mandates

The automotive sector is urging the government to relax the zero emission vehicle (ZEV) mandate, which requires that 33% of all cars sold this year be electric, or manufacturers risk substantial fines.

Industry leaders warn that this policy is causing significant disruption, especially as the European Union moves away from its own plan to ban new petrol and diesel cars by 2035.

Impact of the Pay-Per-Mile Tax

The Office for Budget Responsibility estimates that the introduction of the pay-per-mile tax could result in 440,000 fewer electric vehicles being sold, overshadowing the positive effects of other incentives such as subsidies for EV owners.

In her Budget announcement, Ms Reeves stated that the government would review the costs associated with public EV charging, considering factors like energy prices and other contributors, with the aim of making charging more affordable for consumers.

As electric vehicle adoption increases and the sale of new petrol cars is set to end by 2030, public charging infrastructure will become even more crucial.

While many EV owners can charge at home or at work, those without access to private chargers must depend on public networks.

According to Zapmap, home charging can cost as little as 8p per kilowatt hour (kWh), whereas using a slow public charger can be nearly seven times more expensive, at 54p per kWh.

Charging companies attribute the high cost of public charging to VAT, rising standing charges, and a recent slowdown in infrastructure expansion.

Recent reports have shown that the number of new EV charger installations declined for the first time in 2025.

One industry executive noted that at a particular site, annual costs soared from under £100 to almost £40,000 due to changes in how standing charges are calculated.

They added, “Standing charges now account for more than half of what drivers pay for electricity. Reducing these fees would immediately lower prices.”

The government has been approached for comment on these issues.