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What the budget means for motorists
Where will the road ahead take you…
Ryan Barham
Last updated: 27/11/2025
Ryan Barham
Last updated: 27/11/2025
After weeks of speculation and potential leaks, Chancellor Rachel Reeves announced her budget on Wednesday 26 November, 2025. But what are the changes that will affect car owners and drivers?
The Chancellor announced a new electric vehicle excise duty from April 2028, explaining: ‘This will be payable each year alongside vehicle excise duty at 3p per mile for electric cars and 1.5p for plug-in hybrids.’
This will apply to all battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs). What Car? claims this will cost an EV driver who covers 10,000 miles a year an extra £300 and PHEV driver £150.
Reeves claimed this mileage-based EV tax would enable the government to double road maintenance funding and spend £200 million on more electric vehicle charging points.
According to the BBC, the government has said it wanted a ‘fairer system for all drivers’ (read Tempcover’s blog post ‘What’s the fairest car tax option’) and were keen to stress fuel duty only covers petrol and diesel vehicles.
While bringing in the mileage-based tax system could potentially put off new drivers investing in electric vehicles, the government is also set on encouraging people to buy them as they begin to replace petrol and diesel models. As an incentive to do this, they have changed the Expensive Car Supplement (ECS) or ‘luxury car tax’.
From April 2026, the price threshold of which electric cars are subject to this tax will increase from £40,000 to £50,000, making EVs more affordable to many as new EV buyers will avoid the supplementary £425 per year for the first five years. The lower £40,000 threshold will still apply to petrol, diesel, and hybrid models.
The electric car grant has also been confirmed to continue until 2029/30, while it has also been confirmed there is no reduction in public charging VAT (20%).
Reeves also committed to extending the 5p cut in fuel duty, but only until September 2026. After this, the 5p cut will be reversed in a ‘staggered approach’, increasing in line with the Retail Prices Index (RPI).
The government claims this will save all petrol and diesel drivers approximately £3 per tank.
The RAC states that fuel duty has been frozen for 16 consecutive years, which the OBR estimates will cost the government £120 billion in lost income.
BMW, Mercedes-Benz, Audi, Lexus and Alfa Romeo vehicles have been removed from the Motability charity scheme, along with coupe and convertible cars.
Car Dealer Magazine confirms an email from Motability’s Damian Oton said:
‘Today we’re setting out changes to the Motability Scheme.
‘Following discussions with the UK government, we will be refocusing vehicles available on the scheme, ensuring they meet our customers’ needs and represent the best value we can offer.
‘I wanted you to hear directly from me about what these changes mean, and how your partnership will continue to play a vital role in supporting disabled people’s mobility across the UK.’
The BBC reports these higher-end vehicles have accounted for about 50,000 of the vehicles Motability leases, with customers paying additional costs themselves. The report also states Motability plans to work with manufacturers to increase its proportion of UK-made cards from 7% to 25% by 2030.
https://www.rac.co.uk/drive/news/motoring-news/autumn-budget-2025/
https://www.autocar.co.uk/car-news/consumer/budget-2025-pay-mile-ev-road-tax-confirmed-include-phevs
https://www.whatcar.com/news/autumn-budget-2025-what-does-it-mean-for-motorists/n28421
