Major car tax changes as one million UK drivers to pay more after rate rises

Motorists in the UK are being warned about a looming adjustment in vehicle tax that could impact over a million cars following the recent Autumn Budget revelations. In the first Labour fiscal announcement in 14 years, the Chancellor Rachel Reeves, disclosed various steep tax hikes in addition to several incentives aimed at encouraging the uptake of electric vehicles (EVs).

Whilst presenting her inaugural budget speech to the House of Commons, Reeves noted that one of these measures would be a different tax rate when compared to petrol or diesel models. She explained: "I will maintain the incentives for electric vehicles in company car tax from 2028 and increase the differential between fully electric and other vehicles in the first year rates of Vehicle Excise Duty from April 2025.

"These measures will raise around £400 million by the end of the forecast period." Although the Labour Government ruled out any immediate plans to introduce a pay-per-mile approach to taxation just before the Budget, electric car owners will be charged road tax for the first time from April 2025.

As part of the new tax scheme, EVs will incur an initial annual expense of £10—this rate is set to remain stable till the tax year of 2029-30. Additionally, drivers of hybrid cars are due to experience an upswing in road taxation; specifically, vehicles emitting between one and 50g/km of CO2 will now attract a tax of £110 while those releasing 51-75g/km will be charged £130. Meanwhile, petrol and diesel vehicle owners should brace themselves for a more substantial surge in road tax fees during the vehicle's first year of use on the roads, reports the Express.

Smaller superminis that produce between 111 to 130g/km of CO2, such as the Volkswagen Polo and Citroen C3, will need to pay £440 - double the amount drivers currently face. Larger vehicles that make between 131 to 150g/km will be subject to a charge of £540, whereas those producing between 150 and 170g/km will face a staggering £1,360 charge.

New vehicles with a list price of £40,000 will also be subject to the luxury car tax of £410 for the first five years it is on the road. Iain Reid, Head of Editorial for the used vehicle retail platform Carwow, supported the move to make tax figures for electric cars lower than petrol and diesel models, but is concerned it could lead to sharper rises in the future.

He added: "While they’re no longer exempt from vehicle excise duty from April 2025, electric cars will be subject to more favourable first-year tax rates than petrol and diesel-powered cars. However rather than incentivising electric car ownership, it looks like she is disincentivising ownership of other types with big increases in VED rates and a big increase in Benefit in Kind for hybrid cars coming in 2028."