New VED bands under Labour will 'increase differential' between EVs and petrol

A VED EV car tax change has been announced in the Labour Party Budget in a blow for petrol or diesel drivers. The Chancellor confirmed plans to “increase the differential” between electric cars and combustion models from next Spring.

It will likely mean electric car owners will pay a separate level of VED than petrol and diesel owners. Labour Party MP Ms Rachel Reeves said: “I will maintain the incentives for electric vehicles in company car tax from 2028 and increase the differential between fully electric and other vehicles in the first year rates of Vehicle Excise Duty from April 2025.

“These measures will raise around £400million by the end of the forecast period.” Reza Shaybani, CEO of The EV Network, said: “Electric vehicles will power the country forward to a cleaner, zero-emissions future and we are pleased to see the Chancellor recognise this.”

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Ms Reeves said the Government will renew the tobacco duty escalator for the remainder of the Parliament at RPI (Retail Prices Index) plus 2%, increase duty by a further 10% on hand-rolling tobacco this year and introduce a flat-rate duty on all vaping liquid from October 2026.

She added: “Alongside an additional one-off increase in tobacco duty to maintain the incentive to give up smoking. And we will increase the soft drinks industry levy to account for inflation since it was introduced, as well as increasing the duty in line with CPI (Consumer Prices Index) each year going forward. These measures will raise nearly £1 billion per year by the end of the forecast period.”

On supporting electric vehicle purchases, Ms Reeves said: “I will maintain incentives for electric vehicles in company car tax from 2028 and increase the differential between fully electric and other vehicles in the first year rates of vehicle excise duty from April 2025.

“These measures will raise around £400 million by the end of the forecast period.”