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Chancellor Rachel Reeves delivered the Autumn Budget on 26 November 2025. Several announcements could affect how much you pay for car insurance, road tax, and motoring costs. Here's what you need to know about the key changes.
26 November 2025
The UK Autumn Budget 2025 introduces a new 3p per mile tax on electric cars from April 2028. Insurance Premium Tax stays at 12%. The fuel duty 5p cut is extended until August 2026. The expensive car threshold for EVs rises to £50,000 from April 2026
Chancellor Rachel Reeves delivered the Autumn Budget on 26 November 2025. Several announcements will affect how much you pay for car insurance, road tax, and motoring costs. Here's what you need to know about the key changes
The biggest change for motorists is a brand-new tax on electric cars. From April 2028, drivers of electric vehicles will pay a mileage-based charge called Electric Vehicle Excise Duty (eVED).
How Much Will It Cost?
Electric car drivers will pay 3p per mile. Plug-in hybrid drivers will pay 1.5p per mile. You'll pay this alongside your normal Vehicle Excise Duty (road tax) each year.
For the average EV driver, this works out at around £240 per year, or £20 per month. The government says drivers will self-report their mileage – there won't be any trackers fitted to cars.
Why Is This Happening?
The Chancellor explained that all cars contribute to wear and tear on the roads. Petrol and diesel drivers pay fuel duty when they fill up, but electric car drivers don't pay this. As more people switch to electric cars, the government is losing fuel duty income – the Office for Budget Responsibility forecasts fuel duty could drop to half its current level by the 2030s. This new tax helps fill that gap.
The government says the money raised will help double road maintenance funding in England, which means more potholes will be fixed. They've committed to over £2 billion per year by 2029-30 for local road repairs.
The Budget also included some measures to support the switch to electric vehicles:
Higher threshold for expensive car tax: The 'expensive car supplement' threshold is rising from £40,000 to £50,000 for new electric vehicles from April 2026. This means if you buy a new EV priced between £40,000 and £50,000, you'll save £425 per year on road tax for five years – a total saving of over £2,000.
Electric Car Grant extended: The government is adding £1.3 billion to the plug-in car grant scheme and extending it until 2030. This gives drivers up to £3,750 off eligible electric car models.
More charging points: An extra £200 million is being invested in EV charging infrastructure across the country.
Good news: There was no increase to Insurance Premium Tax (IPT). The rate stays at 12%. This is the tax added to your car insurance premium – for every £100 you pay, £12 goes to the government.
Many in the insurance industry had worried about a potential increase, so this will come as a relief to drivers. The Association of British Insurers estimates IPT adds around £98 per year to the average cost of motor and home insurance combined.
The Motability scheme, which helps disabled people lease vehicles, is seeing some changes. From July 2026:
VAT on advance payments: VAT at the standard rate (20%) will apply to 'advance payments' – the extra amount some people pay to lease more expensive vehicles through the scheme.
Insurance Premium Tax: The standard 12% IPT rate will now apply to insurance on Motability vehicle leases. Previously, this was exempt.
Luxury vehicles removed: Motability has confirmed it will remove luxury vehicles from the scheme. The Chancellor said this brings the scheme 'back to its original purpose' of offering cost-effective leases to disabled people.
The government says these changes will raise over £1 billion over five years. The core VAT reliefs on weekly lease costs and vehicle resale remain in place, and vehicles designed for wheelchair users won't be affected by the tax changes.
The 5p per litre fuel duty cut, which has been in place since 2022, is being extended until August 2026. After that, rates will gradually return to March 2022 levels by March 2027.
The planned inflation increase for 2026-27 has also been cancelled. Combined with the launch of Fuel Finder (a tool to help you find the cheapest petrol nearby), the government says these measures will save households with a car £89 next year compared to previous plans.
VAT remains at 20% on new vehicles. Despite speculation about possible changes, the Chancellor made no announcement affecting the standard VAT rate. Labour had pledged not to increase VAT in their election manifesto.
The good news is that nothing in this Budget should directly increase your car insurance premiums. With IPT unchanged and the Personal Injury Discount Rate having already increased to +0.5% in January 2025, some analysts had predicted premiums could actually fall slightly. Price Waterhouse Cooper previously suggested the PIDR change alone could reduce average premiums by around £50.
However, insurance costs are affected by many factors beyond government policy, including repair costs, claims frequency, and fraud. The best way to ensure you're getting a good deal is to compare quotes from multiple insurers.
Use the free car insurance comparison tool to see how much you could save on your next policy. Whether you drive a petrol, diesel, hybrid, or electric car, comparing quotes takes just minutes and could save you hundreds of pounds.
• From April 2028, electric car drivers will pay 3p per mile in new Electric Vehicle Excise Duty, working out at around £240 per year for the average driver
• Plug-in hybrid drivers will pay 1.5p per mile from the same date
• The 'expensive car' threshold for EVs rises from £40,000 to £50,000 from April 2026, potentially saving buyers over £2,000
• Insurance Premium Tax stays at 12% – no increase for car insurance buyers
• The 5p fuel duty cut is extended until August 2026
• Motability scheme sees new VAT and IPT charges on advance payments from July 2026
• Comparing car insurance quotes remains the best way to find a good deal
Sources
1. HM Treasury – Budget 2025 (HTML): https://www.gov.uk/government/publications/budget-2025-document/budget-2025-html
2. GOV.UK – Insurance Premium Tax Rates: https://www.gov.uk/government/publications/rates-and-allowances-insurance-premium-tax/insurance-premium-tax-rates
3. GOV.UK – Vehicle Tax for Electric and Low Emission Vehicles: https://www.gov.uk/guidance/vehicle-tax-for-electric-and-low-emissions-vehicles
4. GOV.UK – Personal Injury Discount Rate: https://www.gov.uk/guidance/personal-injury-discount-rate
5. Electrifying.com – Chancellor confirms new pay per mile tax on electric cars: https://www.electrifying.com/blog/article/pay-per-mile-ev-tax-confirmed-in-budget
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