The recent Autumn Budget marked the first budget from a Labour Government in 14 years, and it had already been flagged as one that would introduce tougher tax measures in certain areas. The party's pre-election manifesto outlined plans to fix 1 million potholes annually, tackle high insurance premiums, and offer reassurance to electric vehicle (EV) buyers about the health of used vehicle batteries.
While these initiatives were seen as positive for the UK's 41 million drivers, early signals suggested that motorists might face a wave of tax hikes that could dampen enthusiasm. A few weeks ago, reports indicated that EVs would be subject to road tax, the fuel duty cut might be reversed or even increased, and the possibility of road pricing was being considered for the future.
So, what does the Autumn Budget mean for motorists? Here are the key takeaways:
Fuel duty
Let’s start with the good news. In a pleasant surprise compared to earlier expectations, the 5p per litre fuel duty cut introduced in 2022, along with the ongoing freeze on fuel prices, will remain in place at least until March 2026. Given the ongoing cost of living pressures and volatile fuel prices, this was a welcome relief for many.
For the average UK motorist, who drives around 7,500 miles a year, this freeze could result in annual savings of £43 for petrol vehicles and £39 for diesel. While the Government estimates that freezing the fuel duty will cost £3 billion by 2026, the decision was made to "support hard-working families and businesses."
Electric Vehicles Taxation
A new tax on electric vehicles was anticipated due to the declining revenue from fuel duty as more drivers make the switch from combustion engines. To encourage the adoption of electric vehicles (EV's), a £10 first-year Vehicle Excise Duty (VED) rate has been introduced for zero-emission cars, offering an attractive incentive when compared to higher taxes on combustion engine and hybrid vehicles. What's more, this £10 rate will remain in place until at least 2029-2030, rather than reverting to the standard £190 rate, providing significant savings for EV owners.
Vehicle Excise Duty (VED)
From April 2025, Vehicle Excise Duty (VED) rates for all new vehicles, except electric vehicles (EV's), will increase significantly, including for low-emission hybrid cars.
For example, vehicles in the 1-50g/km CO2 range, which includes most current hybrid models, currently paying £10 per year, will see their rates jump to £110.
Cars emitting between 51-75g/km of CO2, which currently pay £30, will see an increase to £130.
Vehicles emitting 76g/km of CO2 or more will see their VED rates double from current levels. This means that the UK’s best-selling car this year, the Ford Puma, will face a first-year rate hike to £440, while a higher-end model like a Range Rover could see first-year VED charges rise to as much as £5,490, depending on the engine.
Beyond the first year, the standard VED rate will continue to increase in line with the Retail Price Index (RPI), as it does now. The Expensive Car Supplement, which applies to vehicles priced over £40,000 when new, will remain at an additional charge of £410 for the first five years. The Government has indicated it will "consider" raising the £40,000 threshold in the future.
Company Car Tax
A major driver behind the adoption of electric vehicles (EVs) has been the low Benefit In Kind (BIK) rates for electric cars purchased through businesses. To continue encouraging businesses to choose EV's, planned increases in the BIK rates will proceed through to 2028. The current 2% rate will rise to 3% in 2025-2026, 4% in 2026-2027, and 5% by 2027-2028. From 2028-2029, the rate will increase to 7%, with a further rise to 9% in 2029-2030.
These changes will also align with planned increases in BIK rates for hybrid and combustion engine vehicles starting in the 2028-2029 tax year, designed to further incentivise EV purchases. Vehicles in the 1-50g/km CO2 emissions range will see their BIK rate rise to 18% in 2028-2029 and to 19% in 2029-2030. All other vehicles will also face 1% increases in both the 2028-2029 and 2029-2030 tax years, pushing the BIK rate for combustion engine vehicles to 38% in 2028-2029 and 39% in 2029-2030.
Infrastructure Investment
The Government has announced plans to invest an additional £200 million in the UK’s electric vehicle (EV) charging network for 2025-2026. With the number of EV's expected to rise steadily, this investment is crucial to ensure the charging infrastructure can accommodate the growing demand. An extra £120 million will also be allocated to the plug-in vehicle grant, supporting the purchase of electric vans and wheelchair-accessible vehicles.
In addition, the '100% First Year Allowances on EV's and Charge Points' tax incentive for businesses will be extended for another year. This means businesses investing in EV's and electric charging infrastructure will continue to benefit from a full tax deduction in the first year.
A further £500 million has been earmarked for road maintenance, including pothole repairs. This additional funding aims to support local authorities in meeting their target of fixing 1 million potholes annually. However, research by the Asphalt Industry Alliance suggests that the current £8.3 billion budget falls significantly short of the £16.3 billion and 10 years of work needed to properly address the UK's deteriorating roads.
Fuel Price Transparency
The Chancellor introduced a new open data initiative called ‘Fuel Finder’ aimed at increasing transparency in fuel pricing. Set to launch by the end of next year, the scheme will allow motorists to easily locate the cheapest fuel in their area without the need to drive around checking prices. It is expected to help drivers save between 1-6p per litre by providing real-time price information before they head to the pumps. Additionally, the scheme will help ensure that changes in wholesale fuel prices are more quickly reflected at the pump for consumers.
While the budget may have alleviated some of the financial pressures on everyday motoring with the continued freeze on fuel duty, the significant tax hikes for those purchasing a new car are likely to be difficult for many to accept. The Society of Motor Manufacturers and Traders (SMMT) had urged the Government to introduce additional incentives to encourage private buyers of electric vehicles (EVs), such as grants, reduced VAT on new EVs, or lower prices for public charging, but these measures have yet to be addressed.
With EV's now subject to a small £10 annual Vehicle Excise Duty (VED) charge, the appeal of purchasing an electric vehicle is diminished further. Many consumers remain unconvinced by EV's, whether due to lifestyle preferences or concerns about practicality. Pricing people out of combustion engine vehicles may not be the most effective strategy to encourage them to make the switch to electric.