The 2025 Autumn Budget has delivered a double blow to many driving instructors and small motoring businesses.

On one hand, the freeze on income-tax thresholds brings the prospect of “fiscal drag,” potentially pushing more hard-earned income into higher tax bands.

On the other hand, new plans to tax electric cars per mile are reshaping the economics of running an EV-based driving school, though this only comes into force in 2028.

Tax freeze bites 

Chancellor Rachel Reeves confirmed that both the personal allowance and higher-rate income-tax threshold will remain frozen, meaning they will not rise with inflation.

That may raise revenues for the Treasury, but many driving instructors fear it will hit their wallets hard.

Analysts warn that even modest income growth for sole-trader instructors could trigger worse tax outcomes.

As pay creeps up or lesson prices rise to cover costs, the freeze means a larger portion of earnings becomes taxable, even though real-world expenses like fuel, vehicle maintenance and insurance are also climbing.

For an instructor earning between £35,000 and £45,000, the freeze could add hundreds of pounds in tax per year.

Others, lucky enough to be edging toward the higher-rate threshold, could have their budgets squeezed further still, reducing take-home pay just as broader living costs rise.

Chancellor Rachel Reeves stated that ‘everyone must contribute’ through tax changes in a recent budget, which included raising levies and freezing tax thresholds to fund public services and address the cost of living.

The government argues these “contributions” are necessary to protect the NHS, schools, and national security.

However, this has been met with criticism, with some newspapers and analysts arguing that the tax rises will primarily affect working people. 

It is also important to note that the Chancellor continues the fuel duty freeze, as well as emphasising the importance of new fuel-finding tools to ensure competitive fuel pricing on forecourts.

It means the cost of running petrol or diesel vehicles remains manageable.

EVs to pay too 

Currently, owners of new EVs only pay £10 VED in the first year, then a standard £195 per year thereafter.

For driving schools that switched to electric vehicles to gain from lower running costs, the Budget diluted that advantage.

Starting April 2028, all electric cars (EVs) will pay a new pay-per-mile tax, dubbed eVED. Battery EVs will be taxed at 3p per mile, while plug-in hybrids (PHEVs) will pay 1.5p per mile.

Using the typical mileage for a driving school, often well beyond the national average of 8,000–9,000 miles per year, this could add roughly £240–£270 a year in additional costs, before factoring in maintenance, electricity, or charging fees.

Stacked on top of the annual £195, the pay-per-mile is likely to erase much of the operating-cost advantage EVs previously offered. 

However, while current VED rates for petrol and diesel vehicles remained unchanged, these charges may increase over the next few years as the government encourages more people to buy EVs and sales of new petrol and diesel vehicles are banned from 2030.

Knock-on effects

Driving Instructors Association (DIA) and other training-industry voices responded to the Budget with concern.

An unnamed DIA spokesperson commented that “instructors need to review business models now: fiscal drag plus rising running costs will squeeze margins tight.”

Meanwhile, the AA, long a voice for everyday motorists, acknowledged the challenge EV drivers now face.

President Edmund King welcomed the freeze in fuel duty as temporary relief, but said any pay-per-mile system must be “fair, transparent and proportionate” in design. 

Even with the EV purchase grant extended to 2030 and the threshold for the Expensive Car Supplement raised from £40,000 to £50,000, a measure the government hopes will maintain EV uptake, many argue the new mile-based tax outweighs the savings. 

Need to do

Faced with shrinking margins, instructors are being advised to consider:

  • Raising lesson prices, especially for frequent or rural-area pupils, where mileage is high.

  • Reducing working hours or scaling back expansion plans to keep tax burdens manageable.

  • Tracking mileage and costs more carefully to reclaim allowable business expenses.

  • Exploring more efficient vehicle choices, including fuel-efficient petrol/diesel cars rather than EVs, if the cost benefit disappears.

  • Reviewing business structure, as some accountants suggest, income drawn through a limited company could have different tax implications than sole-trader status.

Learner drivers may find the cost of lessons rises.

Driving schools may reduce discounts, surcharge for evenings or home-pickup, or decline expansion.

The combined effect would be inflationary on lesson prices, which could reduce demand for lessons. 

Road ahead

For the motoring sector overall, the Budget underscores a shift: fuel duty will no longer fund road maintenance in the same way, and electric vehicles, long seen as the future of low-cost motoring, now face new recurring costs.

As one DIA member commented: “We used to say EVs cut your running costs; now, unless you carefully plan routes and pricing, you could be paying more than before.”

Rather than placing a greater tax burden on the wealthier in society, the government has opted for ‘everyone contributing’ more.
After years of austerity from previous Conservative governments post the international banking collapse of 2008, which witnessed massive cuts to public services, from the NHS and Courts, to police and the roads, the incumbents argue that investment is essential to prevent public infrastructure from failing, and standards falling even more.
The move to EVs, while benefiting the environment, is severely reducing Treasury income.
Pay-per-mile is regarded across the board as the fairest and most sensible way to make up the shortfall in VED, which will only increase as more people choose to go electric.