Government’s autumn statement sees introduction of VED for EVs in 2025

The government’s current Chancellor, Jeremy Hunt, has announced that electric vehicles will be charged excise duty beginning in April 2025. Whilst the amount that owners will pay is unknown at present, the introduction of so-called ‘road tax’ for EVs is designed to make VED “fairer”.

According to the Treasury itself, the introduction of VED on EVs will ensure “all motorists begin to pay a fair share”, albeit those affected by this move – that is to say owners and prospective owners of EVs – won’t be hit for another two-and-a-half years. Until then, EVs will remain exempt from VED.

In addition to VED, company car drivers will have to pay increased benefit-in-kind (BiK) rates from 2025, with the rate increasing to 3 per cent in April that year and increasing one per cent for the following years until it hits five per cent in 2027/28.

Softening the blow is a commitment from the government to continue to invest in charging infrastructure. However, given its track record, many – including us – will be dubious as to the effectiveness of this, if it even materialises in any meaningful way.

In the intervening years, and if the current growth in EV sales continues, we can expect to see anything between half and three-quarters of a million new EVs on the road, typically replacing ICE vehicles as they do so. Obviously, for the country’s net zero by 2050 ambitions, not to mention the phasing out of ICE by 2030, this growth needs to be supported. As such, the government will need to tread a fine line when it decides on how much EVs pay in VED so as not to delay the transition.

So far, the industry reaction has ranged from cautiously positive to downright scathing.

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 c.35% “green premium” of EVs over petrol or diesel equivalents. Our analysis shows that drivers can still save £80 per 1000 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.”

Quentin Willson, FairCharge founder, said: “Today’s autumn statement was a huge missed opportunity to stimulate the electric car revolution. With millions struggling with the cost of living, the best way to help with the cost of motoring would be to get more people into EVs, which enjoy significant total ownership cost advantages over combustion cars.

“It is right that the Chancellor is starting to think about ways to fill the growing fuel duty hole, but introducing VED on EVs without a corresponding increase for combustion cars will reduce incentives to go electric. What’s more, because new car buyers are generally well off, increasing VED on combustion cars, particularly SUVs, would hit the highest earners who drive the most polluting vehicles the hardest. This would have raised revenue while keeping all important incentives to reduce emissions.”

Edmund King, president of the AA, said: "Whilst we understand that EVs will need to be taxed, we stress that the road to electrification must not be stalled by excessive taxation.

“There is no doubt the introduction of vehicle excise duty on EVs and making EV company cars less attractive by increasing tax rates will slow the road to electrification. This may delay the environmental benefits and stall the introduction of EVs onto the second-hand car market. Unfortunately, the chancellor’s EV taxation actions will dim the incentive to switch to electric vehicles.”

The RAC’s Head of Road Policy, Nicholas Lyes, was slightly cooler about the news: “After many years of paying no car tax at all, it’s probably fair the government gets owners of electric vehicles to start contributing to the upkeep of major roads from 2025.

"Vehicle excise duty rates are unlikely to be a defining reason for vehicle choice, so we don’t expect this tax change to have much of an effect on dampening the demand for electric vehicles, given the many other cost benefits of running one.”

The backdrop of the Chancellor’s statement is a recession which will see the UK’s GDP fall by around 1.4 per cent in 2023 according to the Office for Budgetary Responsibility. Blame, according to the government, lies at the door of Russia, though it’s hard to argue this is more than a deflection away from the exchequer’s own rampant mishandling of public funds and a disastrous mini-budget from the blink-and-you-miss-it Truss government.

As well as hitting EV drivers, there’s a double whammy against clean transport with the household energy cap set to increase so that an average household will pay around £3000 for their energy bills. Obviously, that isn’t going to be helped by plugging in an EV every evening.

#government-ev-policies #budget #ev-company-cars #road-pricing #tax-on-evs #charging-infrastructure #electric-vehicles #ev-cost-of-ownership #ev-emissions #ev-uptake

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