Major changes to car tax will come in over the next two years
The Government has released an update regarding changes to road tax. Vehicle Excise Duty, also known as road tax, is expected to rise in accordance with inflation once more in April 2026.
Independent MP James McMurdock questioned Chancellor Rachel Reeves in a written parliamentary inquiry about whether she intends to “review the structure of Vehicle Excise Duty”. Treasury minister Dan Tomlinson delivered the Government’s response.
He said: “Vehicle Excise Duty (VED), sometimes known as ‘road tax’ or ‘car tax’, is a tax on vehicles used or kept on public roads. Different rates apply to cars, vans, and motorcycles, and the rate for each vehicle is calculated according to a range of factors, such as its date of first registration, weight, or CO2 emissions.”
Addressing the possibility of reforms to the system, Mr Tomlinson said: “The Government has no current plans to review this structure.” Nevertheless, he did acknowledge that major modifications are on the horizon.
The minister outlined: “At Autumn Budget 2025, the government announced the introduction of Electric Vehicle Excise Duty (eVED), a new mileage charge for electric and plug-in hybrid cars, which will come into effect from April 2028. Drivers will pay for their mileage alongside their existing Vehicle Excise Duty (VED).”
Under the new proposals, electric vehicle drivers will be charged 3p per mile, while plug-in hybrid motorists will pay 1.5p per mile, with both rates subject to inflation-linked increases. The Government has launched a consultation on these plans.
The consultation document states: “It will be set at half of the equivalent rate of fuel duty for electric cars, and half again for plug-in hybrid cars. eVED will ensure all car drivers contribute, but will still maintain important incentives to switch to an electric vehicle. eVED will not require ‘trackers’ in cars, nor will the government ask people to interact with a whole new tax system: car drivers will pay for the miles they drive alongside paying their usual road tax (VED).”
From April 2025, electric vehicles became liable for vehicle excise duty. Chancellor Rachel Reeves set out in the Autumn Budget that the VED Expensive Car Supplement threshold would be raised from £40,000 to £50,000 from April 2026. VED rates for vehicles of all types will rise in line with inflation from April 2026.