European Commission plans to stimulate the economy consider removal of VAT on EVs

COVID-19 isn't just a human tragedy. In economic terms it is devastating, with up to 14 per cent of GDP potentially being wiped from the UK's balance sheet this year with other countries suffering even more. Stimulating economies is now a top priority, and in the EU plans are afoot to drive the green transport agenda at the same time.

Bloomberg has cited a draft plan by the European Commission which is looking to kick-start the automotive industry once again, but promote the shift to EVs along the way. According to the document seen by Bloomberg, incentives for producing and selling EVs, as well as installing infrastructure such as charging points are being put forward.

Within the document, considerations around the environment are front and centre, with it apparently stating: “Massive support for the automotive industry will put significant debt on future generations. That support must respect our youth's expectations on climate change and for a healthier, cleaner future.”

The stimulus package would appear to leave internal combustion-powered vehicles out of the picture. The Commission could propose an EU-wide purchasing facility worth 30bn euros over the next 24 months which would cover only 'clean' vehicles. A complementary investment fund worth up to 60bn euros would be available for EV drivetrain development and apparently the Commission is considering a package to build up to two million public charging points and “alternative refuelling stations” by 2025.

Most interestingly, the report suggests that “zero-emissions cars would be exempted from value added tax”. This would knock anywhere between 15 per cent and 25 per cent off the price of a new EV. To put this into context a Nissan LEAF would drop from around 34,000 euros down to 27,200 euros thanks to the removal of France's 20 per cent VAT rate.

The Norway example

We wrote recently about how Norway leads the world in EV adoption and has achieved this thanks to a proactive and progressive attitude to everything from incentives through to things like exemption from road tolls. So good are the incentives to go electric in Norway that a VW e-Golf works out cheaper than a petrol version once everything is added up, despite the significantly higher list price of the electric car.

Chief among the EV incentives in Norway is exemption from the country's 25 per cent VAT rate. It's perhaps little surprise that typically, EVs make up over two thirds of monthly registrations in the country.

But the UK is exiting the EU...

Our bowing out of the most powerful trading bloc in the world of course means that whilst we're liable to stay broadly in-line with many EU directives, we aren't subject to them. The lunacy of that aside, the UK can now deviate from the wider continent if it so wishes – and that means not being part of some really good, progressive policies like any potential EU-wide stimulus package.

The Society of Motor Manufacturers and Traders is already on the case when it comes to VAT, however. Back in March – which seems like another epoch entirely – it called for the removal of VAT from all new battery electric, PHEV and hydrogen fuel cell cars. It calculated that on average, this would knock £5600 off the purchase price.

The SMMT's rationale back in March wasn't so much about the emergency market stimulation that is required now, as trying to create price parity between EVs and ICE vehicles. At the time, SMMT Chief Executive, Mike Hawes, said: “To drive the transition to zero emission motoring, we need carrots, not sticks – as the evidence shows, talk of bans and penalties only means people hang on to their older, more polluting vehicles for longer. It’s time for a change of approach, which means encouraging the consumer to invest in the cleanest new car that best suits their needs.

“If that is to be electric, Government must take bold action to make these vehicles more affordable and as convenient to recharge as their petrol and diesel equivalents are to refuel.”

Of course, this was in advance of the budget, but given what's happened since, we expect renewed calls for the removal of VAT on EVs by the trade body and other parts of the automotive business. Given the government's recent steps to support a transition to EVs, such as the ultra-rapid charging plan for England, we're hopeful that they might be receptive to the idea.

Discover EV's take

There have been calls for things like new scrappage schemes and other artificial stimulus packages to get the car market moving again. Unless scrappage pertains only to swapping for clean cars, it must be considered a non-starter; it simply goes against any sensible environmental policy. The EU Commission's draft plans look to be exactly the kind of thing that's required across the continent; backing the hugely important car industry, but nudging it in the direction that it needs to go, and making it possible for the public to take advantage of it.

Dropping VAT across the EU and mirroring that here in the UK would be a hugely positive move to grow the EV market share and keep on track to hit net-zero targets.

#government-ev-policies #tax-on-evs

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