Tax cost of EVs
The government loses £1k per vehicle in the first year
The government has stipulated that all new petrol and diesel vehicles will be banned from sale in the UK from 2030. This has raised speculation that road pricing schemes and tolls could be introduced by the chancellor in the near future to cover lost revenues.
Sales of electric and plug-in hybrid vehicles made up more than one in 10 new vehicle registrations in 2020, up from 1 in 30 in 2019. Demand for battery electric vehicles (BEVs) grew by 185.9%, figures from the Society for Motor Manufacturers and Traders (SMMT) show.
Many manufacturers are accelerating their design and production of electric models. Already this year many new EVs have hit the market, and in the last week Jaguar pledged to be purely electric by 2025, and Ford by 2030.
Pricing the future
Switching from a petrol car to a new electric alternative saves motorists an average of £592 a year according to the RAC Foundation. Free from excise duty and VAT, there’s also no £305 in first-year VED (Vehicle Excise Duty) or ‘showroom tax’ to pay. The difference increases to £800 and £338 respectively when swapping diesel for the more environmentally friendly option.
Sales of pure electric vehicles almost trebled in 2020, with 108,000 units sold. If sales reach their predicted level of 175,000 during 2021, the Treasury will miss out on nearly £200 million in lost fuel taxes and VED. That’s when road-pricing schemes may be implemented to help fill the gap in cash.
Gerry Keaney, chief executive of the British Vehicle Rental and Leasing Association (BVRLA), said: “Many road-users can now see the benefits of a well-designed, carefully implemented national system that can help pay for the huge cost of upgrading the UK’s road network and zero-emission vehicle infrastructure.
“Such a scheme should be used to replace the current motoring tax regime, which is too complex and inefficient.”
Motorists do not have to pay VED nor the £325 surcharge for newly registered vehicles costing more than £40,000. Plus, those buying green vehicles can apply for a £3,000 grant to help with the costs.
These incentives were designed to promote purchases of new electric vehicles, but the prospect of road tolls could do the opposite, putting people off investing in EVs.
Steve Gooding, director of the RAC Foundation, said: “In the face of a big decline in revenue, the chancellor could decide to turn off the money taps and start to tax EV drivers rather than subsidise them. For those buying battery-powered cars on the premise of cheap motoring, that will be a huge shock.”