Mixed response to Chancellor’s ‘green premium’

Electric vehicles will no longer be exempt from road tax from April 2025, after Chancellor Jeremy Hunt announced the change in his Autumn Budget.

The news drew a mixed response from the industry.

Mike Hawes, SMMT chief executive said: “We recognise that all vehicle owners should pay their fair share of tax, however, the measures announced today mean electric car and van buyers – and current owners – will face a significant uplift in VED. The sting in the tail is the VED supplement which will unduly penalise these new, more expensive vehicle technologies. The introduction of taxes should support road transport decarbonisation, and the delivery of net zero, rather than threaten both the new and second-hand EV markets.

“With a ZEV mandate on the way for car and van manufacturers, we need a framework that encourages consumers and businesses to buy electric vehicles. We look forward to working with government on how to transition the market and ensure the tax framework on road users supports this objective.”

Ian Plummer, Auto Trader commercial director, said, “The Chancellor is clearly looking for revenues, but the prospect of increased running costs will drive more would-be buyers away from EVs when other incentives are being scrapped and high energy bills are eroding the advantages of going electric.

“The 2030 ban on new diesel and petrol sales is looming ahead but measures like this will hardly encourage motorists to switch amid a cost-of-living crisis. An excise duty raid is unhelpful and sends the wrong message if we’re to be serious about getting EVs into the mainstream and beyond the wealthier car buyers who can afford the 35% green premium of EVs over petrol or diesel equivalents.

“Our analysis shows that drivers can still save £80 per 1,000 miles by making the switch to electric, but this move will take away a big chunk of the ownership savings that are still very much needed to bridge what remains a significant purchase cost differential for EVs.”

However, What Car? believes the announcement will have little bearing on EV uptake.

Jim Holder, editorial director, said: “The tax-free status for electric vehicles was always going to come to an end, and What Car?’s research suggests most buyers are already in favour of taxing EVs. A study of 1140 in-market buyers found just 14.6% feel they should remain tax-free in the future, while 45.1% want to see EVs taxed already now and not wait until 2025.

“How electric cars will be taxed remains unclear. What Car?’s research found 32.8% of in-market buyers are in favour of a flat annual tax on all electric cars that is equal across makes and models, while 17.5% would like road charging introduced where drivers are charged per mile driven. A progressive annual tax based on the vehicle’s list price is supported by 19.2%.”

He added: “An unintended consequence of rising the average household energy price cap to £3,000 from April is that electric vehicle sales in the UK will decline, though nowhere near as much as if no price cap was present.”