Fresh calls for government to scrap VAT on electric cars or increase grants to boost sales

Ministers should consider abolishing VAT on electric vehicles (EV) or increase the incentives currently available to buy them, a market report has said.

The RAC’s annual report on motoring found that electric car demand is marginally higher than a year ago, with fewer than one in ten drivers polled saying their next car will be battery powered.

The motoring group said the high upfront cost of EVs is the major obstacle preventing drivers from making the switch from their petrol and diesel vehicles.

It has now urged the government to improve incentives available to buyers of electric vehicles, calling for the 20 per cent tax to be scrapped or the existing plug-in car grant of £3,000 increased.

The RAC surveyed 3,000 drivers about their next car buying intentions, finding nine per cent expressing the desire to purchase a battery electric vehicle next.

That was an increase on the six per cent of people claiming to be in the market for an EV when the motoring organisation conducted the same report a year ago.

Nearly eight-in-ten polled (78 per cent) said pure electric cars are still too expensive when compared to conventional vehicles of a similar size.

The combination of high EV prices and the financial toll of the Covid-19 pandemic in the last year has seen an increase in the number of motorists intending to keep their petrol and diesel cars for longer than they were planning back in 2019.

To make zero-emission cars more affordable to consumers, the RAC said ministers should seriously consider removing VAT.

More than half of drivers quizzed said they favoured a reduction – or complete abolition – of VAT on battery electric cars.

Scrapping the tax would see EV prices drop by an average of more than £5,000.

This would significantly reduce the price gap between an electric model and a comparable petrol or diesel car.

EVs can cost up to £10,000 more than an equivalent car with a combustion engine.

For instance, the Volkswagen’s ID.3 medium-size hatchback currently starts from £29,990 – inclusive of the plug-in grant.

That compares to the £23,355 cost of the entry-level petrol VW Golf, which is almost identical in dimension to its electrified sibling.

Alternatively, EV prices could be made more affordable by hiking the value of the taxpayer-funded Plug-in Car Grant – up by £1,000 to £4,000, says the RAC.

Ministers have come under waves of criticism in recent years for gradually reducing the grant available to EV buyers at a time when the government is most forcefully pushing motorists to make the switch.

When the grant launched in 2011, it provided up to £5,000 off the price of a new 100 per cent electric vehicle or plug-in hybrid model.

However, this was reduced to £4,500 and subsequently scaled down again in October 2018 to £3,500, as the government looked to curtail the incentive.

It was most recently slashed to £3,000 – and added the caveat of only being available for buyers of EVs priced under £50,000 – in the March 2020 Budget, when it was confirmed the grant would remain until 2023.

Almost half (48 per cent) of the drivers polled by the RAC also called for the introduction of a scrappage scheme, where customers are financially incentivised to hand over their polluting petrol and diesel cars in exchange for a zero-emissions vehicle.

Separately, motorists also want assurances that they would be able to charge these vehicles easily when they are away from home, with more than two-in-five drivers (43 per cent) demanding a binding national target for access to public chargepoints – such as ensuring 95 per cent of the population live no further than five miles from the nearest device.

The report also highlighted ongoing scepticism over the driving distances available from electric cars, with motorists claiming they wanted to be able to cover at least 375 miles in an EV before they would consider stepping out of their motors with internal combustion engines.

This would be enough driving range to travel from Cambridge to Edinburgh on a single charge.

The survey came as the government continues to draw out the finer details of its plans to ban the sale of new petrol and diesel cars in 2030, with hybrids phased out five years later.

The move is expected to cause a surge in demand for the cleanest vehicles, which are already selling in record numbers in the UK.

Last year 108,205 pure electric cars were sold in Britain, almost three times the total a year earlier.

However, they still only make up only 6.6 per cent of new cars.

Commenting on this week’s report, RAC spokesman Rod Dennis said: ‘The single biggest barrier to a driver choosing an electric car over one powered by petrol or diesel has to be cost.

‘Although good finance leasing deals and offers such as free home charging for a set period can help, it appears to be the case that the price of many new electric vehicles remains prohibitively high for a lot of people, with most drivers keen to see more financial help from the government.’

Want the latest Electric vehicle news in your inbox? Sign up to the free EV Powered email newsletter...