How the 2025 UK Budget Could Change the Future Cost of Car Leasing

How the 2025 UK Budget Could Change the Future Cost of Car Leasing

The 2025 Autumn Budget didn’t deliver any overnight shocks for drivers – there was no sudden fuel duty hike, no new bans, no dramatic change to company car tax.

But buried in the Chancellor Rachel Reeves’ announcement is a quiet reshaping of how driving will be taxed for the rest of the decade – especially for electric vehicles.

For anyone leasing a car now or thinking about their next move, it’s worth understanding what’s changing, when it kicks in, and what it might mean for monthly costs in the future.

A New Pay-Per-Mile Tax on EVs (From April 2028)

The headline motoring change is the introduction of a mileage-based charge for electric and plug-in hybrid vehicles from April 2028.

From that date, the Government will charge:

• 3p per mile for battery electric cars

• 1.5p per mile for plug-in hybrids

with both rates increasing each year in line with inflation.

This new levy will apply on top of standard Vehicle Excise Duty (VED) – it’s not a replacement for road tax, it’s an extra layer.

Why is this happening?

At the moment, petrol and diesel drivers pay a big chunk of tax every time they fill up via fuel duty. EV drivers don’t buy fuel, so they don’t pay that tax at all. As more people switch to electric, fuel duty revenue is dropping – and the Treasury needs a replacement.

The pay-per-mile system is the Government’s answer: instead of taxing the fuel, it taxes the distance driven.

The technical details (exact reporting method, how it will work for business vs private mileage, how vans are handled, etc.) are still being worked through, but the message is clear:

EVs won’t remain “almost tax-free” forever – especially for high-mileage drivers.

For leasing, this matters more for future planning than it does for today’s quote. A driver taking a 2–4 year EV lease in 2025 will almost certainly hand the car back before the mileage charge starts in 2028.

EVs Lose Their Road Tax Exemption

Another big shift is that EVs no longer pay £0 road tax.

From 1 April 2025, electric, zero and low-emission cars are pulled fully into the VED system:

• New EVs now pay a first-year VED rate (currently £10), then

• From the second year, most fall into the standard annual rate (currently around £195 for cars in that band).

This applies to both new and existing EVs, not just those registered after April 2025.

The “expensive car” tweak

To soften the blow slightly, the Budget also raises the “expensive car supplement” threshold for EVs from £40,000 to £50,000.

That’s important because many family-sized EVs sit around the £40k mark simply due to battery cost. Without this change, a lot of perfectly normal electric family cars would have been dragged into a premium tax band.

So, in plain terms:

• EVs do start paying road tax from 2025

• But the Government is trying not to punish mid-priced electric cars by treating them as “luxury” models

For leasing customers, VED is baked into the rental, so you’ll see it as a small piece of the monthly price rather than a painful yearly bill.

Fuel Duty Stays Frozen… For Now

On the petrol and diesel side, there’s short-term relief.

The Chancellor has confirmed that:

• The 5p-per-litre cut in fuel duty introduced in 2022 stays in place

• The wider freeze on fuel duty continues until 31 August 2026

That means no immediate tax-driven jump at the pump. For high-mileage ICE drivers – reps, trades, small businesses – this offers welcome stability.

However, from April 2027, fuel duty will start rising with inflation each year.

So:

• Short term (2025–2026): nothing painful, fuel stays relatively stable from a tax point of view

• Longer term (from 2027): petrol and diesel will become steadily more expensive through policy, not just market prices

For lease customers choosing a 2–3 year petrol or diesel contract now, most of that long-term increase sits beyond their current term — but it’s something to keep in mind for future renewals.

EV Running Costs Will Get More Complex

Until now, the script around EVs has been simple:

“They cost a bit more per month, but they’re much cheaper to run.”

From 2028, that becomes more nuanced.

Electric cars will still generally be cheaper to fuel than petrol and diesel – especially if you charge at home or on off-peak tariffs – but the gap narrows once you add:

• VED (from 2025)

• The 3p-per-mile EV charge (from 2028)

• Higher public charging costs compared to home charging

Suddenly the question isn’t “Are EVs cheaper?” but “Are EVs cheaper for me?”

Key factors become:

• How many miles you drive per year

• Whether you can charge at home or rely on public rapid chargers

• Your electricity tariff

• Your mix of town vs motorway driving

High-mileage EV drivers will feel the per-mile tax more than low-mileage users. A driver doing 30,000 miles a year pays a lot more in usage tax than someone doing 8,000 – even though both enjoy lower “fuel” prices than petrol or diesel.

Low- to medium-mileage EV drivers with home charging will still come out ahead, often by a clear margin, even with the new taxes.

So EVs stay attractive – but the savings are no longer “automatic”. They depend strongly on real-world usage.

High-Mileage Fleets May Rethink Full Electric

A pay-per-mile system inevitably hits high-mileage vehicles the hardest. For fleets running cars at 20,000–40,000+ miles a year, that adds up quickly.

These vehicles already carry higher costs in:

• Tyres

• Servicing and maintenance

• Depreciation

• Public rapid charging

• Downtime and reliability risk

Add a 3p-per-mile charge on top for EVs, and the whole-life cost picture changes 

That doesn’t mean full EVs stop making sense for fleets – but it does mean:

• Some long-distance roles (national sales, field engineers, rural routes) may move slower to full electric

• Plug-in hybrids (taxed at 1.5p per mile) become more attractive again for mixed driving patterns

• More fleets adopt a multi-fuel strategy: EVs for urban and regional roles, PHEVs or efficient diesels for heavy motorway use

Leasing funders also need to think about residual values. If high-mileage EVs become less attractive on the used market once per-mile charges are widely understood, that could put pressure on resale values and, over time, on lease pricing for those specific use cases.

For now, the tax model is announced but not fully implemented, which makes long-range forecasting trickier. That’s exactly why many businesses may prefer shorter, more flexible lease terms over tying up capital in owned vehicles.

More Complexity = More Need for Specialist Guidance

Put all this together and you get a motoring landscape that’s… complicated.

Drivers and businesses now have to juggle:

• Road tax (VED) – now hitting EVs as well as ICE

• Usage-based EV tax – from 2028 onwards

• Fuel duty – frozen short term, rising later

• Benefit-in-Kind (BiK) – crucial for company car drivers; still extremely favourable for EVs

• Clean air and ULEZ-style zones – increasingly tough on older petrol and diesel vehicles

• Salary sacrifice rules – making EVs incredibly tax-efficient for employees, but with conditions attached

On their own, each of these is manageable. Combined, they make it very hard for a typical driver to answer a basic question:

“What’s genuinely the best option for me over the next 3–4 years?”

That’s where leasing brokers come in.

Instead of customers guessing, a good broker can:

• Ask about mileage, routes, home charging, tax bracket and business use

• Compare EV vs PHEV vs petrol/diesel based on real-world usage

• Model whole-life costs – not just the monthly rental, but fuel/energy, BiK, tax and charges

• Suggest contract lengths that avoid the most uncertain years if the customer wants less risk

In a simpler world, drivers could afford to take a punt and buy outright.
In this more complex world, they’re increasingly looking for:

• Expert advice

• Clear, predictable monthly costs

• Flexibility to change direction as the rules evolve

That’s exactly what leasing – and brokers like Willow – can offer.

So, What Does This Budget Really Mean for Your Next Lease?

If you strip away the complexity, the key takeaway for most drivers is surprisingly straightforward:

• Nothing dramatic changes for your next 2–4 year lease.

• EVs remain very attractive, especially for home-charging drivers, business users and salary sacrifice schemes.

• Petrol and diesel get a temporary tax breather, but are on a clear path to higher duty later in the decade.

• From 2028 onwards, everyone – not just ICE drivers – will be paying more attention to mileage and total running costs.

• Leasing protects you from guessing what your car will be worth or how tax policy will change over five to ten years.

If anything, this Budget makes flexible, fixed-cost leasing more appealing:

• You don’t carry residual value risk.

• You’re not locked into one fuel type for too long.

• You can use expert advice to make sense of the moving parts.

In a world where motoring tax is getting more complicated, leasing offers something very simple:

Choose the right car for how you drive today – and keep the option to change as the rules change.