The UK Government has been urged to look at other countries for examples of successful pay-per-mile policies, as one expert claims the new fee could “collapse” the nation’s entire electric vehicle market.
Rachel Reeves confirmed in this year’s autumn Budget that a new tax on electric vehicles (EVs) would be coming into force in 2028, costing the average driver an extra £255 annually.
The new fee will equal 3p per mile for battery electric cars and 1.5p per mile for plug-in hybrid cars, increasing annually in line with inflation.
With details of the new scheme still unclear, a public policy think-tank has directed attention towards Iceland’s successful implementation of its own pay-per-mile scheme.
Manually reporting miles driven
Iceland introduced road pricing last year as a result of concerns on fairness to other drivers declining fuel duty revenue, similarly to the UK.
The monthly payments are based on odometer readings, which must be logged by drivers at least once a year.
This is similar to reports of how the new UK scheme would work, which would see the Driver and Vehicle Licensing Agency (DVLA) using an annual reporting system for drivers.
Brits are expected to manually report the miles they drive under the scheme (Photo: John Walton/PA)It is thought that Brits would estimate how many miles they expect to travel in the year ahead and pay the relevant charge in advance when renewing their vehicle excise duty.
Those who exceed their estimate would pay a top-up fee, while drivers who travel fewer miles could roll over their unused balance into the following year.
Purchase grants to encourage car sales
A report from the Social Market Foundation (SMF) think-tank on strategies to end the freeze on fuel duty in the UK said several incentives were employed for EV drivers in Iceland for a smoother integration of the scheme.
These included relatively lower fees than petrol vehicles in the new pricing model, with hybrid cars enjoying a reduced rate, much like the new UK scheme.
Several schemes to encourage EV use in Reykjavík have proven fruitful (Photo: Harald Nachtmann/Getty Images)Other economic incentives in Iceland include exclusions from registration tax as well as VAT exemptions of up to £8,400 per vehicle.
The European Commission also states that Iceland offers purchase grants for EVs for up to the equivalent of £5,300, adding that £14.7m worth of grants had been distributed between January 2024 and April 2025.
Funding for charging points
Concerns have been raised over the UK’s pay-per-mile tax due to the availability of charging points, with Mike Childs, Friends of the Earth’s head of policy, calling the fee “premature” given the “disproportionate” price of public charging.
“The cost of public charging needs to be brought more in line with home-charging before this measure is implemented,” he said.
Iceland has looked to circumvent this issue by offering additional funding for charge points to EV drivers, with grants available to those living in apartment blocks in Reykjavík.
Furthermore, EV drivers can enjoy free parking for up to two hours in both the capital and Akureyri.
Applying incentives to the UK system
The handouts in Iceland ultimately helped to maintain market demand following the kilometre-based fee.
This resulted in electric cars accounting for 29 per cent of the new car market in the country from January to July this year, representing the highest growth in EV sales in Europe.
The Chancellor’s announcement of the new UK tax came alongside plans to expand the Electric Car Grant, which provides consumers with discounts of up to £3,750 on electric cars, to 2030.
squareBUSINESSBig Read100-year-old mine to reopen in Cornwall - but not all locals are happy
Read More
She also extended the expensive car supplement threshold for battery electric cars from £40,000 to £50,000. This is the threshold at which car purchasers pay an additional vehicle excise duty of £425 annually for five years.
Gideon Salutin, a senior researcher at SMF, urged Reeves to maintain the growth of the EV sector by ensuring operating taxes on such vehicles remain lower than those levied on their petrol counterparts.
He asked the Chancellor to consider redirecting funding from its EV grant scheme to social leasing, a scheme already popular in France which subsidises the cost of leasing an EV for low-income drivers, effectively making such vehicles cheaper to use than a petrol or diesel car.
Salutin also asked for a flat number of miles that drivers could travel for free in a given year to allow lower-income households to continue to go on essential journeys.
The cost of the new UK fee is roughly half the rate of fuel duty paid per mile by owners of petrol and diesel vehicles.
The Office for Budget Responsibility said this meant the average driver of a battery electric car will pay an additional £255 per year, based on an average annual mileage of 8,500 miles annually.
Salutin said: “While the SMF welcomes the introduction of a pay-per-mile tax, which will see EV owners begin to compensate the public for the noise, road-wear, space and pollution that their vehicles generate, the details of its introduction risks collapsing the UK’s EV market.”
Your next read
square TAX ExclusiveLabour plans crackdown on second home tax loophole
square BUSINESS Big Read100-year-old mine to reopen in Cornwall – but not all locals are happy
square MEDIABBC Christmas viewing hits record lows with ‘stale’ line-up
square WORLD ExclusiveGap year soldiers to be trained to fight in war zones under new UK military scheme
Hence then, the article about the three lessons uk can learn from iceland s pay per mile scheme for evs was published today ( ) and is available on inews ( Middle East ) The editorial team at PressBee has edited and verified it, and it may have been modified, fully republished, or quoted. You can read and follow the updates of this news or article from its original source.
Read More Details
Finally We wish PressBee provided you with enough information of ( The three lessons UK can learn from Iceland’s pay-per-mile scheme for EVs )
Also on site :