CEO Update

Decarbonisation demands fair taxation

01 March 2024 #CEO Update

The Spring Budget in just five days’ time is a pivotal moment for government to re-energise the EV market. The Chancellor must use the occasion to end the UK’s current fiscal system that is, in effect, discouraging drivers from going green, with action needed to reduce VAT on electric vehicles so that all new EV buyers – not just businesses and fleets – are afforded an incentive to buy. This would be a fair tax for a fair transition.

The need for this measure is clear. New findings published by SMMT today show would-be EV buyers are deferring purchases – last year just one in 10 potential new car buyers said they would wait until after 2030 to switch; today around half say they will wait. It’s a change in sentiment that follows government’s decision last September to delay the end of sale of pure petrol and diesel cars until 2035. Yet our decarbonisation challenge remains immense, with the auto sector expected to deliver a world-leading net zero timeline in what is Europe’s only major market without private consumer EV incentives.

That’s why industry is today calling for EVs to be moved back in the fast lane – making the EV market equitable by halving VAT on new private purchases, in the same way that buyers of heat pumps and solar panels benefit from similar VAT incentives to deliver net zero. As HM Treasury has incurred a windfall in new car VAT receipts, moreover, given EVs are generally more expensive than their internal combustion engine equivalents, it is only fair to return half of that to the consumer. Such a step would therefore save the average EV adopter around £4,000 off the upfront purchase price, while costing the Treasury less than the scrapped Plug-in Car Grant, at just £1,250 per vehicle. At the same time, government should treat EVs as essential – not luxury – vehicles and exempt them from “expensive car premium” Vehicle Excise Duty rates due to come into force next year.

But vehicles alone are not the answer. As more than one in three drivers does not have a driveway and would rely on public chargepoints, it is unreasonable that public charging incurs VAT at four times the rate of private charging. The Budget can set that right.

Shoring up the UK’s manufacturing competitiveness is also crucial to attract green growth, and the confirmation this week that a new multi-billion pound EV battery manufacturing facility will be in Somerset was eagerly anticipated – providing 4,000 skilled jobs and wider benefits to the region and Britain’s economy.

UK Automotive is in a strong position to build further, as new SMMT car manufacturing figures show, with volumes up by a fifth in January and electrified vehicles accounting for almost one in four made. Commercial vehicle (CV), meanwhile, had its best January for 16 years. Given recent announcements by UK manufacturers launching electric van, bus and hydrogen coach models, this is a highly dynamic sector, making this year’s Commercial Vehicle Show on 23-25 April particularly exciting. And tickets are available here.

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