Owners of the most polluting vehicles could pay up to £5,490 more in tax under Rachel Reeves’ Budget.
The worst hit will pay £5,490 more. (Image: Getty)
Owners of the most polluting vehicles could pay up to £5,490 more in tax under Chancellor Rachel Reeves’ new Budget, foreshadowing the 2035 ban on petrol and diesel car sales.
The rates for cars, vans, and motorcycles, including hybrid cars and vehicles less than one-year-old, will rise from 1 April 2025.
Owners of fully electric vehicles, who currently pay a low Benefit-in-Kind (BiK) tax rate of 2%, will have to increase payments to 5% by 2027/28, which will increase again by 2% each year until 29/30.
The hybrid vehicle tax structure is changing significantly. Rates will be solely based on CO2 emissions rather than the existing consideration of zero-emission mileage.
This means vehicles emitting between one and 50 grams of CO2 per kilometre will see their rates rise to 18% in 2028/29 and 19% in 2029/30. Rates for all other vehicle bands will increase by one percentage point annually during these years, with maximum rates reaching 38% and 39%.
READ MORE: Jeremy Clarkson’s heartbreaking farm admission before Rachel Reeves Budget blow
The move was announced as part of Rachel Reeves’ Budget. (Image: Getty)
It’s part of a move towards the 2035 target to ban the sale of petrol and diesel vehicles. However, Richard Smith, MD of the Road Haulage Association (RHA), said this adds stress to operators in an already challenging economic climate.
He said: “We are disappointed that the Heavy Goods Vehicle (HGV) VED rate and the HGV Levy will rise with RPI from April 1, 2025.
“This will add further cost pressure on vehicle operators at a time when the industry is facing a range of other rising costs.”
When it comes to first-year rates, zero-emission cars will pay the lowest, at £10, until 2029-30, to encourage drivers to buy a non-polluting vehicle.
Cars emitting between one and 50 grams of CO2 per kilometre, including hybrid vehicles, will increase from £10 to £110 for 2025-26, while cars emitting more than 76 grams of CO2 per kilometre will see the rate double.
Anna Krajinska, UK Director at Transport & Environment, praised the Chancellor’s Budget for setting a tax policy that reflects the UK’s future of being powered by electricity.
She said: “Increasing the first-year Vehicle Excise Duty differential between polluting and electric cars, for which the UK currently has one of the worst differentials in Europe, is exactly the right move.
“The future is electric, and tax policy needs to reflect that. Meanwhile, extending preferential rates for electric cars through the UK’s very successful Benefit-in-Kind policy is a smart decision to sustain EV demand for the years to come.”
The Chancellor also announced the plan to phase out new cars that rely solely on internal combustion engines by 2030.
Budget documents confirm that over £200 million will be invested in public electric vehicle charging points in 2025-26, with further funding for local authorities to install on-street charge points across England.
