New car tax rules will ‘discourage’ switch to electric motoring

Drivers buying an electric car rather than a petrol or diesel model will be three times more likely to be hit by the luxury car tax under new rules, figures suggest.

Online vehicle marketplace Auto Trader, which conducted the research, called for the overhaul of vehicle excise duty (VED) to be delayed, claiming it risks putting people off from making the switch to electric motoring.

The Treasury will remove exemption from VED for electric vehicles (EVs) from April 1.

That means all EV owners will be charged at least the standard rate, which from that date will be £195 for the second year onward after a vehicle is registered.

Luxury car tax

But drivers who buy a vehicle registered from April 1 with a list price exceeding £40,000 will also incur the expensive car supplement, known as the luxury car tax.

That will be £425 annually from years two to six after a car is registered.

These changes were announced in November 2022 under the Conservative government by then-chancellor Jeremy Hunt, who said he wanted to “make our motoring tax system fairer”.

The policy is being continued by the Labour Government.

The cost of manufacturing batteries means the price of many EVs is higher than for conventionally-fuelled cars.

Auto Trader said 56% of the electric cars up to five years old on its site have a list price in excess of £40,000.

For those in the same age range with a petrol or diesel engine, the percentage is just 16%.

Wrong

Ian Plummer, commercial director of Auto Trader, said it is wrong to give consumers “additional reasons not to make the switch” to electric motoring.

He added: “Despite the more uncertain global climate, it makes sense to delay these duty increases to ward off the risk of harming attitudes towards EVs for the sake of a marginal gain in revenues for the Treasury.

“EVs up to five years old on our site are three-and-a-half times more likely to be hit by the expensive car supplement than internal combustion engine cars in the same age range.

“That kind of difference is unhelpful for efforts to persuade drivers to switch.”

Under the zero-emission vehicles (Zev) mandate, at least 28% of new cars sold by each manufacturer in the UK this year must be zero-emission, which generally means pure electric.

The market share held by pure electrics last month was 25.3%.

Failure to abide by the mandate or make use of flexibilities – such as buying credits from rival companies or making more sales in future years – will result in a requirement to pay the Government £15,000 per polluting car sold above the limits.

The Government is analysing feedback from a recent consultation on proposed changes to the rules, which could include making it easier for non-compliant manufacturers to avoid fines.

Depreciation 

Steve Gooding, director of motoring research charity the RAC Foundation, suggested the “Treasury’s logic” for the expensive car supplement changes is that someone spending more than £40,000 on a car can “reasonably be asked to dig a bit deeper to pay more tax”.

But he expressed doubt that this is the case for people buying used cars as their value from new “usually depreciates rapidly in the first couple of years”.

He added: “The risk is that the expensive car supplement could be having an unintended and, in policy terms, perverse impact at a time when the pressure is on to promote the attractiveness of used EVs as part of the decarbonisation of motoring.”

Quentin Willson, founder of FairCharge and advisory board member of EVUK, which are both pro-EV groups, said: “I strongly disagree with the EV expensive car supplement.

“Six hundred and twenty pounds a year to tax most EVs will discourage private buyers who get no incentive whatsoever to switch from combustion to electric.

“Ministers say we should drive EVs, while the Treasury creates tax barriers to put us off.

“This isn’t intelligent policy making in action.”

A Treasury spokesperson said: “The shift to electric vehicles will support growth and productivity across the UK and is crucial for tackling climate change.

“Our balanced approach ensures fiscal stability during the transition to electric vehicles, including by introducing vehicle excise duty on EVs from April 2025, while maintaining targeted incentives to encourage their uptake.”