Motoring industry calls on Chancellor for fairer taxation to rev up electric vehicle adoption

The motoring sector is urging the Chancellor to utilise the forthcoming Budget to accelerate the UK’s transition to electric vehicles (EVs), advocating for fair taxes to facilitate a smoother shift.

Fresh research conducted by Savanta on behalf of the Society of Motor Manufacturers and Traders (SMMT) indicates a growing number of prospective EV drivers are contemplating delaying their transition to battery-powered cars. However, a three-pronged tax reform strategy could reignite the market and expedite the nation’s journey towards achieving net zero emissions.

The survey reveals that the decision in September to extend the deadline for the prohibition of new petrol and diesel vehicle sales from 2030 to 2035 has prompted nearly a quarter (24%) of drivers to reconsider their plans. Additionally, one in seven (14%) respondents now express reluctance to ever switch to electric vehicles.

Despite the UK maintaining its position as Europe’s second-largest market for new electric cars in terms of volume, the pace of growth has slackened, and EV market share has plateaued. Notably, while fleet and business purchases continue to drive market expansion, individual retail uptake has dwindled since 2022. This demographic now accounts for fewer than one in four new EV registrations, down from one in three previously.

This shift in consumer sentiment jeopardises the attainment of the UK’s net zero targets. In a survey conducted in early September 2023, prior to the government’s announcement of the sales deadline extension, only around 11% of respondents interested in electric vehicles expressed intent to postpone their purchase until after 2030. This figure has since surged to almost half (46%). In response to the latest survey findings, nearly three-quarters (73%) of consumers cited concerns over vehicle affordability, availability of charging points, or charging costs as the primary obstacles hindering their transition to electric vehicles.

The forthcoming Budget presents an opportune moment to realign Britain’s electric vehicle strategy, enabling motorists to embrace eco-friendly alternatives. Key proposals include reducing VAT on new EVs by half, revising Vehicle Excise Duty rates to treat EVs as essentials rather than luxuries, and enhancing the affordability of public charging facilities.

SMMT’s research underscores the significance of a VAT reduction on EVs as the most effective measure to expedite consumer adoption. Approximately 37% of prospective EV buyers cited a VAT cut as a catalyst for accelerating their transition, with even 26% of sceptical drivers expressing openness to the idea.

While buyers of other carbon-reducing technologies benefit from VAT incentives, motorists purchasing both zero-emission and fossil fuel-powered vehicles currently incur the standard 20% VAT rate. Given the higher initial costs associated with EVs, this imbalance has resulted in a substantial VAT windfall for the Treasury, amounting to around £1.7 billion over the past five years.

Halving VAT on new EV purchases could yield savings of approximately £4,000 for the average buyer, while costing the Treasury less than the discontinued Plug-in Car Grant. Such a measure could potentially add 270,000 additional EVs to the roads over the next three years, bolstering the supply of second-hand EVs, which experienced a 90.9% uptake in 2023.

Moreover, forthcoming changes to Vehicle Excise Duty in 2025 could inadvertently penalise EV purchasers, with around 70% of currently sold EVs slated to incur an ‘expensive car’ VED supplement. This would impose an additional cost of £1,950 on EV buyers, contradicting the intended objective of incentivising electric vehicle purchases.

Industry stakeholders also advocate for equitable taxation on public charging, proposing a reduction in VAT from 20% to 5% to align with home charging rates. The current tax structure unfairly disadvantages drivers without access to home chargers, dissuading them from transitioning to EVs and undermining the nation’s net zero objectives.

Mike Hawes, Chief Executive of SMMT, emphasised the pivotal role of the Budget in revitalising the EV market through fair taxation. He urged the Chancellor to dismantle the existing fiscal barriers that deter motorists from embracing electric mobility, affirming that decisive action is imperative to propel the nation towards a cleaner, quieter, and more economically sustainable transportation landscape.